Trading Plan for 4/16
[pay]Pattern notes.
Tuesday’s failed opening surge did manage to fulfill buying pressure that was identified Monday as targeting ESm 1338’50. And Tuesday’s low did deliver the required retest of Monday’s pre-open low at 1325’75. These two pieces of information can be used to construct a bullish case: 1) the low fulfilled selling pressure, and 2) the high’s afternoon recovery created new buying pressure.
Therefore, a rally would be free to unfold since selling pressure has been fulfilled. And the afternoon’s recovery suggests that rally is unfolding because the morning’s surge had already satisfied that area’s buying pressure, so there was no other reason to revisit it except to start trending up.
My problem with the first data point is that the afternoon recovery peaked nearly 1-point short of 1338’50. S&Ps did gap up to 1344’00 after the close in reaction to INTC’s earnings comments. A one-hour old dip just touched Tuesday afternoon’s high as support. While that leaves outstanding a overnight high that will try attracting price higher, the 100% pullback does underscore that the overnight reaction is not yet a breakout.
My problem with the second data point is that other patterns Monday had indicated the retest of its pre-open low would include filling the gap back to March 31’s 1321’75 close. So there might still be unfinished business at lower levels, after all. Despite retracing the post-close gap up, it’s too early to know whether today’s session will try to satisfy the lower target. By the same token, despite the post-close gap up, it is entirely too soon to say a rally has begun. And considering Tuesday morning’s string of unrequited buy setups, the potential for a meltdown would only increase if the post-close INTC reaction were rejected.
Indicators and Internals.
Volume accompanying Tuesday’s alleged reversal was relatively heavy, but not dramatically. Certainly not so much as to indicate the post-close gap up was an opinion shift, instead of a reaction to an earnings surprise. Internal spreads weren’t very wide despite the afternoon’s 13-point rally, a contradiction that is magnified when considering the post-close reaction. Since total volume did increase, Wednesday’s session is obligated to reward Tuesday’s sellers for their relative productivity.
Wednesday’s opening setup.
Overnight price action never extended Tuesday’s post-clos gap up. In fact, twelve hours of ranging sideways has finally dipped back under Tuesday morning’s high, which doesn’t exactly smack of a runaway rally unfolding. The move could simply refuel buyers for a retest of overnight highs. But that retest would need to maintain a recovery above 1343’00 before improving the argument that a rally might be underway. Otherwise, the overnight high’s retest – let alone a rally – would likely put off indefinitely by failing to recover from a dip under 1336’00.[/pay]