Trading Plan for 3/31

[pay]Pattern notes.
Friday’s pattern was similar to Thursday in one very important way: the relentless push to lower lows, despite the open having gapped up. Generally the market abhors repetition. A “third strike” rule would be more poetic than accurate, and another gap up that resolves in lower lows would actually be more bullish. If two failed gaps up can’t produce a gap down, then a lower low intraday wouldn’t easily gain traction, and would more likely be only a formality to forming a low.

So, let’s informally call this the “third at-bat had better knock it out of the park” rule. By that standard, two lower lows followed by a drop to lower lows only to recover would be bullish. And instantly recovering Friday’s last-hour drop would be a pretty good swing at the first pitch – still, it would need to remain airborne for awhile so almost any pullback could stop short of reversing momentum back down.

Indicators and internals.
One motivation behind recent gaps up is that internal spreads were creating the obligation to reward the prior sessions’ buyers for their relative productivity. That hasn’t changed, since Friday’s 2:1 spread between declining issues and advancers was produced by a 3:1 spread between NYSE down and up volume. As usual, the obligation can be rendered moot by a gap down under the prior session’s low. MACD & RSI were mixed at Friday’s low so there is no clear signal that a retest is required.

Monday’s opening setup.
Under the first two patterns described above, the next lower low would target ESm 1311’00. There is potential that Friday’s 1313’75 low fulfilled a slightly higher target, but that’s not likely; Friday’s post-close bounce peaked 1 tick under the 1319’50 level where closing any higher would have signaled momentum reversing up. The third scenario would be triggered by maintaining an immediate recovery above 1321’75. But the decline otherwise remains intact.

Monday’s econ report isn’t very high-profile, except that its timing 15 minutes after the cash session open does have potential to accelerate or reverse any trending already underway. The quarter’s last trading day might be influenced by portfolio managers’ window dressing, but not with any predictability (i.e. timing and direction).[/pay]