Trading Plan for 4/25
[pay]Pattern notes.
Despite Thursday’s noon hour problems that included afternoon bias window having rejected the noon hour’s higher highs, S&Ps recovered to probe last Friday’s highs. And because of those same problems, the higher highs ranged narrowly for an hour incapable of pushing higher. This base wasn’t capable of supporting a breakout, so the highs pushed back. S&P dropped 10 points from ESm 1399’25 into the cash session close, and fell another 6 points to 1383’00 into and out of the Globex open.
The story since then has been quite different. After a couple of false starts through midnight, S&Ps have rallied 11 points to touch 1394’00. The level represents a 61.8% retracement of the range between Thursday’s noon hour high and its bias window retest. The timing of these highs was critical, as well as their combined rejection, had formed an unstable base responsible for dooming the afternoon’s higher high.
An immediate recovery through yesterday’s noon hour highs would indicate that their bearish influence had been absorbed, making new highs likely. But if the overnight bounce does fail, then overnight lows would be the first logical attraction to falling prices.
Indicators and Internals.
MACD & RSI had deteriorated and ultimately diverged negatively during the formation of Thursday’s failed noon hour highs. The initial consequence was only a 6-point pullback, supported by momentum remaining from the morning’s surge and from optimism ahead MSFT’s earnings. Technicals speak louder and their base was unstable, so higher highs were doomed to failure. The overnight rally never produced divergent readings, but RSI hasn’t become overbought at any time, which questions the rally’s credibility.
Friday’s opening setup.
If it hasn’t already done so, the bounce should at least start peaking at ESm 1394’00, which has already been touched. Back under 1391’75 would target 1384’25, a 61.8% retracement of the consolidation at overnight lows. The 1383’00 overnight low wasn’t a new trend extreme so it doesn’t require being retested, but touching it would make the drop likely to continue. The overnight gains can still be exploited to resume yesterday’s rally, by essentially gapping up to or above 1395’50 to reject the drop from yesterday’s noon hour highs. Any less strength would be suspicious.[/pay]