Trading Plan for 4/16

[pay]Pattern notes.
The final score for Wednesday’s session between bulls and bears is 3-2. Three probes under Tuesday’s low were each recovered, but only two probes into positive territory were reversed down. The third made up for all others by testing the afternoon’s 848’25 bias-up target, having started from fulfilling a test of the 835’00 bias-down signal.

Had the session closed negative, it probably would have qualified as “ineffectually pessimistic” and made a rally likely Thursday. (Closing too negative Wednesday, e.g. under Tuesday’s low, would have been effectual.) Instead, Wednesday’s last-hour rally borrowed against that potential bullishness. The rally started with the hour, but new session highs waited until after 3:35 when price action is heavily influenced by end-of-day position squaring. No doubt the surge was exacerbated by anticipation ahead of JPM’s high-profile earnings due before Thursday’s open.

A word about 844’00: I’ve been referencing this level quite a bit lately because it is the highest calculable target for this stage of the bear market rally. Last Thursday’s attempt to break higher was rebuffed twice Monday. So long as price action can be characterized as ranging around 844’00 – e.g. within the noise range, false break rejected, etc. – the target is presumed to be holding. The level itself is not a signal for another move, so closing above it isn’t sufficient to trigger a new upleg, any more than closing under it would trigger a downleg.

Indicators and Internals.
Technicals left no unfinished business above. They did deteriorate into Wednesday’s last-minute higher highs, but not enough on their own to create a sell signal.

Thursday’s opportunities.
The econ calendar is busy, and the earnings calendar is also influential with JPM pre-open and GOOG after the close. Wednesday’s close was at equilibrium since it was testing a target (849’25). The next trending attempt is likely to be retraced and then reversed more substantially in the opposite direction. This likelihood would be rendered moot by gapping far enough Thursday – either above 854’50 or under 841’50-842’50. The gap up limit is also Thursday’s high, the pivotal high prior to Monday’s actual high. Just touching the pivotal high all but assures testing the actual high. The actual high could still hold its test, especially if preceded by a short and shallow pullback.[/pay]