Trading Plan for 4/27

[pay]Pattern notes.
Last week’s first Trading Plan included a Big Picture outlook that was bearish, which seemed prescient after Monday’s steep drop. The balance of the week worked its way back to the prior week’s close.

After Monday’s drop, the next three mornings tried to resume the drop (highlighted red), twice gapping down into negative territory and then once turning negative after gapping up. Each effort failed to earn sellers traction by the close, similar to two weeks earlier (highlighted green). The third strike in each case was followed by the following session’s gap up and intraday trending higher (circled green).

The “Strikeout” setup punishes ineffectual sponsorship for draining their energy after three consecutive sessions. Ironically, the reaction can have its own consequences for expending too much energy too quickly. Friday’s close may have avoided this trap by stumbling into the cash session close, but futures recovered it all before the weekend.

Having probed the prior high’s consolidation, buyers are all but required to gap up above the 872’00 prior high if the rally is extending. Otherwise, prices remain within the range, a range that has yet to shake its characterization of ranging around 844’00. Still range-bound, at the range’s upper-end, having just filled the prior high’s outstanding gap – rejecting a gap up Monday, or not gapping up at all, might find that buyers had expended their own energy.

Indicators and Internals.
MACD & RSI diverged negatively at Friday’s highs among various periods. The last-minute dive might have sufficed already to fulfill the setup. But buyers don’t appear to have gained any traction when futures recovered most of the drop. Immediately trading to a higher high could easily register another negative divergence.

Monday’s opportunities.
The econ calendar is not a factor, but earnings announcements continue to be influential. Recently, so have been comments made by administration officials appearing on Sunday morning’s political talk shows. If this weekend’s budding pandemic is more than sensationalist, it should already be affecting Sunday night’s price action. Gapping down Monday under 855’00 would give sellers control when they could do the most damage, and the worst kind. [/pay]