Trading Plan for 4/21
Immutable laws are made to be broken… Buy every pullback, and hold long into earnings. What could be simpler, right? Beware when the simplest strategies start generating the greatest near-term reward. That’s one sign they’re getting close to ending. [pay]
Pattern points… (Setups and technicals)
Despite the substantial overnight rally, Wednesday was really a trading range. The range can be defined by 1324.00-1329.00. The range began forming at 6:30am, and contained the entire session.
In reaction to earnings released after Wednesday’s cash session close, a post-close surge probed above the morning’s pre-open and post-open highs. But futures closed back under the two prior highs, leaving the 1332.00-1333.00 target outstanding. AAPL’s earnings triggered another surge that attacked 1335.00.
Relentless, un-refueled overnight trending that originates intraday tends to produce an aggressive retracement. The pattern also tends first to produce two intraday higher highs. The aggressive drop’s likeliest timing is during the session’s last 60-90 minutes. Perhaps its delay is similar to the second higher high’s delay, which didn’t come until after the cash session close. But it came. With a vengeance.
The drop to last Thursday’s 1290.25 low has now been retraced back to the prior week’s 1335.75 high. Pretty close. It is unlikely that the round trip’s purpose has been served, or that its sponsorship has been rewarded already. The same can be said for the two combined attacks on February’s highs. New highs targeting 1339.50 and potentially 1346.00 are in-play. The question is whether its path there is direct.
What’s Next… (Outlook and opportunities)
A runaway rally is unlikely with volume slowing during the afternoon as traders leave early for the three-day holiday weekend. A reversal down from probing new highs would still be possible. One other possibility to prepare for is that Wednesday’s buying was exacerbated by the weekend’s impending illiquidity. An immediate drop at Thursday’s open could trend down into the close. [/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.