Trading Plan for 4/29
[pay]Pattern notes.
From a contrarian perspective, optimism is a dangerous thing. But it’s fun while it lasts. Optimism was so heavy at Tuesday’s open that it prevented a retest of overnight lows down to 837’00. That might have been remedied if not for the Chrysler, IBM and Consumer Confidence news driving S&Ps up to 858’00. No news was still good news as the day’s mid-section ranged sideways at session highs. Also optimism.
Finally – at least, for optimists – the sideways ranging offered a false sense of security to prompt a momentary surge to new session highs at 861’50. Then, like the game of musical chairs, the music stopped. Optimism didn’t disappear completely, as it probably limited the last hour’s drop to test its 851’00 target.
Ending any timing window at a target can leave the market at Equilibrium. The first one or two trending attempts are retraced entirely, and often reversed more substantially in the opposite direction. This state can be rendered moot by gapping open beyond a prior high or low. We’ll look for signs of Equilibrium Wednesday, but not if the consequences of Tuesday’s excessive optimism include gapping down under 847’00.
The gap back to Tuesday’s opening print at 845’00 requires a retest eventually. This stage of the pattern has no reason to revisit it if not also intending to extend down. Sunday night’s 838’50 lows should still be probed, for example. That would have bee constructive to forming a durable bottom if done at Tuesday’s open. Now it’s probably too late for that, and lower lows would find its last support in the 800’s to be just under 820’00.
Indicators and Internals.
Tuesday’s last hour extremes drove 3-minute RSI to its own extremes, as much as possible without becoming overbought or oversold. No unfinished business was left outstanding.
Wednesday’s opportunities.
A gap up above 857’00 would get a benefit of the doubt for at least retesting Tuesday’s high, but it would otherwise be expected to hold as resistance. A gap under 845’00-847’00 would have a change at extending down sharply. But any trending attempt – perhaps triggered by GDP due before the session’s open – must capture its territory early to avoid being paralyzed by anxiousness ahead of the 2:15 FOMC announcement. The president’s planned evening address could quickly reinstate the paralysis into the close.[/pay]