Trading Plan for 4/14
[pay]Pattern notes.
W’ve been operating under the premise that Thursday’s opening gap up was only a retest of prior highs, prior highs that had fulfilled the bear market rally’s 844’00 target. In this context, Thursday afternoon’s higher highs were only noise around the target’s retest.
Monday’s gap down under that noise was appropriate within this context, although it was too shallow to preclude a recovery to retest Thursday’s high. The entire morning was spent in negative territory, creating “ineffectual pessimism.” So far, the premise remained intact.
The “ineffectual pessimism” was exploited by the afternoon’s retest of Thursday’s high. A second higher high probed it by nearly 7 points. Thursday’s high was retested thoroughly, and a close above it would have invalidated the premise of a retest. Instead, Thursday’s gap up would be confirmed as a breakout signaling the bear market rally leg’s extension.
Markets work in mysterious ways, so it was of course interesting when Monday’s late probe into positive territory was retraced back under Thursday’s high. The breakout premise was not confirmed. This is not in itself a sell signal, but it does tend to become one. Buyers created an opportunity Thursday to gain traction and failed to do so at the next opportunity. This leaves a void, with one more opportunity for buyers to fill it. The market doesn’t like a void, and will suck in sellers near Tuesday’s open if buyers haven’t reasserted themselves convincingly.
Indicators and Internals.
MACD & RSI diverged negatively into Monday’s high, and the setup was already productive. The 1-minute indicators improved as the last-minute drop’s lows were forming, so a retest of Monday’s high can’t be discounted.
Tuesday’s opportunities.
Goldman Sachs (GS) pre-announced earnings after Monday’s close, having been scheduled pre-open Tuesday. This clears the smoke for other pre-open news, essentially from the econ calendar. The president is speaking at 11:30, which should keep things lively. Intel (INTC) is scheduled to announce after the close, which might make pre-close price action revealing.
A gap up above Monday’s 861’25 high would be a first step towards rejecting the last-minute dive. (Since this was Monday’s high, a session-long rally would not be signaled.) It would also be a first step to trapping more longs, so there wouldn’t be much tolerance for hesitating to follow-through. A downleg doesn’t need another kick-start of failed higher highs, and would only need negotiate breaks under 850’00 and 844’00. [/pay]