Trading Plan for 4/21
[pay]Pattern notes.
Friday’s last 60-90 minutes were spent ranging around the open’s ESm 1391’50 print.That’s relevant because it represents no net improvement on the day, despite having gapped up and then spending the entire session in positive territory. Sound familiar? This “ineffectual optimism” is the inverse of Thursday’s ineffectual pessimism. It should be noted that these setups are inverse to each other – they are similar and not opposites. When similar setups appear consecutively, the reactions are likely to be different. A gap down would still be credible, but it can’t be positioned for ahead of time.
After firming into Friday’s cash session close, price only slid afterwards. Price had only slid after the cash session’s open. When the week’s last post-open and post-close price action mirror each other, the “Friday Factor” expects the next week’s opening price action to mirror this week-ending price action. So whether Monday’s session opens flat or gaps in either direction, within several ticks it should start sliding. Put another way, sliding would be credible if it developed within several ticks of Monday’s open; a slide might not happen at all if it doesn’t develop within several ticks of the open.
A “Gotcha!” setup would form if Monday’s response to Friday’s new trend high was to close back under the prior high close – but that’s about 20 points lower, and the setup is more reliable when the new high and its rejection occur in the same session. A gap down would essentially form an Island, relative to the prior high but not relative to the prior two months’ highs. The market can face selling pressure for a couple of days, but a trend reversal might not be possible without gapping down sharply and failing to recover by Tuesday’s open.
Indicators and Internals.
Internal spreads were wide again, which mooted by the session’s gain, but sellers were more productive than buyers and that has yet to be rewarded. MACD & RSI were mixed to lower, and diverged negatively among shorter intervals.
Monday’s opening setup.
The only thing a rally has in its favor Monday is that this has been the market’s opinion lately. That one factor doesn’t trump any others, but it can outweigh them. The mindset can change either over time by forming a multi-session distribution pattern, or else by the immediate paradigm shift of gapping down sharply. The latter scenario has everything going for it, so not gapping down would mean any intraday weakness was likely to recover.
A 17-20 point decline that tests Thursday’s highs as support would be potentially bullish because its recovery wouldn’t be weighed down by unfinished business. A 17-20 point gap down would be potentially bearish because the resulting pattern would be as if Friday’s gap up had never happened[/pay]