Trading Plan for 3/30

[pay]Pattern notes.
Last week’s session opened with a record-setting surge to new recovery highs at 821’00. That was essentially Friday’s highs. It’s as if nothing happened in the interim, but of course very much did happen. Wednesday’s first attempt at extending Monday’s rally was countered by a 36-point decline to 787’00, of which the close recovered 25 points. Thursday recovered the rest, and then some, extending to new recovery highs at 830’50. Friday’s open countered by gapping down back under 821’00 to trade sideways into the close.

Except for two 90-minute periods Monday and Wednesday afternoon, last week’s price action traded exclusively above the prior week’s highs. Buyers have two accomplishments to show for their efforts at avoiding a drop: 1) A drop was avoided, and 2) A gap above was left open. The first accomplishment prevented sellers from regaining traction, similar to the prior week’s two-day decline that held above prior lows. The second accomplishment maintained an attraction to higher prices, very important now that the rally’s 821’00-825’00 target has been met and held.

Wednesday’s open and close were both tests of 809’50, creating equilibrium. This makes the first trending attempt false, and requires a reversal in the opposite direction to a greater degree. In this context, Thursday’s new high was the false break. Friday’s reversal stopped at 809’50 instead of beginning the reversal phase. The gap back to Thursday’s close might still be filled – it’s not required, since Friday’s open gapped under prior highs. But its retest is still possible nonetheless, and any higher high would only add to the eventual reversal.

Indicators and Internals.
Wednesday and Thursday’s higher highs were accompanied by lower highs among RSIs, each time producing a dip. Nothing new there. Wednesday’s oversold RSI almost immediately produced Thursday’s higher high. Also not unusual. But Thursday’s recovery was different from prior recoveries, because it was already reversed back under prior highs. By contrast, prior recoveries extended higher long enough for RSI to again become overbought, and only then was a pullback entertained. This doesn’t preclude yet another higher high Monday or Tuesday, but it would be uncomfirmed and its failure would be dramatic, since RSI hasn’t yet become oversold.

Monday’s opportunities.
The week begins with an empty econ calendar, although it gets busier as the week progresses towards Friday’s Employment Situation report. But the week also begins with macro-economic sands shifting into the G-20 meet. It seems the pace of domestic spending isn’t being embraced so warmly. The Treasury Secretary’s rounds on Sunday talk shows might get some play, as well. All of which should be apparent overnight ahead of Monday’s open.

Whether overnight or intraday, back above 823’00 would target 827’00, where any higher through any relevant timing window would target 838’00 and 844’00. Back under 813’00 and 809’50 would resume the selling from Friday’s open, further rejecting Thursday’s recovery high. There’s a treasure trove of unfinished business back to and through Wednesday’s lows – essentially 797’00, 786’00, 767’00, 762’00… with potential for eventually producing a retest of March’s low.[/pay]