Trading Plan for 4/11

If this leg is going to extend down at all… then it’s going to extend down a lot. This next leg shouldn’t just equate to Friday’s drop, or to Monday’s drop, but to their cumulative drop. And Thursday’s drop didn’t come close.

Pattern points… (Setups and technicals)[pay]
Thursday’s 3:10-3:20 bounce to 1832.50 didn’t recover a single higher prior low or prior high. The market could have closed there and qualified for a hold-short. The close did dip to 1826.00, which was 2 points above the session low.

Did optimism prevent Thursday’s last hour from trending down? Falling that far so quickly, breaking prior lows, and still finding sellers. Wow. That’s scary enough from a contrarian perspective to still have so much attitude to adjust. Scarier, yet, is to consider how much of the last hour’s hesitation was because strong-handed sellers were still being patient. That much more powerful selling yet to act is another side to the same coin.

We’ll know it’s the latter if Friday’s open were to bounce. Gapping up above 1836.00 would leave the gap outstanding at Thursday’s 1826.00 close, but it would also trigger at least a morning bounce. That would be strong-handed patient sellers enticing even more weak-handed optimists to further trap themselves — and refuel the decline.

Thursday’s close was a trend change, which would be confirmed by a second consecutive lower close Friday. The next lower attractions would be 1815.00, 1803.00, and then much lower.

[/pay]What’s Next… (Outlook and opportunities)[pay]
One nagging thing that might nag at us for awhile is that Thursday morning’s drop originated during a no-bias environment. That normally would require recovering at least to 1859.25. The wild, wide overnight ranging makes me willing to dismiss the unfinished business above, but it’s difficult to ignore.[/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.