Trading Plan for 4/21
[pay]Pattern notes.
Monday’s open gapped down and slid throughout the day, but the drop’s momentum ended well before noon. Rather than diminish the chart’s eventual damage, back-ending the slower pace only adds to the suspense. Think “Theme from Jaws” and imagine the menacing creature circling just beneath the surface, only its dorsal fin exposed. Feeling safe?
Actually, sharks rarely expose their dorsal fin, except when appearing as a scale model in a movie. Let’s be more realistic. So, imagine a small trawler without dry land in site. A great white has been knocking into it repeatedly, gradually chipping away at the ship’s integrity. But this ship isn’t “Orca,” she is the “830’00.” She’s taking on water, but her crew won’t go down without a fight.
Monday’s repeated probes of the 830’00 target have chipped away at its support to help it give way. So would a drop from the 841’00 area. Of course, this would require a bounce up to the 841’00 area – whether overnight or intraday. A failed bounce would be entirely appropriate after Monday’s equilibrium close, coming after a trend’s target was met, and before the trend put a new target into play. Equilibrium’s first trending attempt is likely to be retraced, and reversed more substantially in the opposite direction.
Equlibrium can resolve in either direction, so a recovery could be expected if there were an immediate drop down to the 823’00 area – whether overnight or intraday. But bouncing first is more likely because Monday’s low had the same characteristic that undermined last week’s highs. This time it was the low’s test of a prior low that failed to close under it, robbing sellers of their traction. Gapping open up above the 841’00 area or gap down under the 823’00 area would break free from equilibrium’s orbit. Either would signal a session-long trend in that direction.
Indicators and Internals.
Monday’s slow drip-drip-drip pace of successively lower lows kept RSI from becoming oversold. Without an oversold RSI accompanying one price low, a lower low in price can’t be accompanied by a positive divergence. A bounce is not impossible in this setup, nor is it terribly unlikely. But the bounce’s origin would not be a base substantial enough to launch a sustainable rally.
Tuesday’s opportunities.
Earnings season continues to influence price action. More so now since the weekend’s public policy discussions have been thoroughly disseminated. Oh, wait. Kansas City Fed’s Tom Hoenig gives testimony to Congress and it might be a distraction after the open. The combination might foster an environment for initial trending to reverse intraday. Not for the sake of reversing, but because the initial trending had become unsustainable. [/pay]