Trading Plan for 4/7

[pay]Pattern notes.
Monday’s gap down extended down through the morning as sellers chopped away at support. The afternoon chopped away at resistance into the close. Not chipping away, but chopping. Channeling, not accumulating. Two probes under the morning’s 821’50 bias-down target were each recovered going into and coming out of the noon hour, when the afternoon’s 818’75 bias-down signal was touched as support.

Sellers never renewed their traction, so price simply retraced back into the range instead of trending away from it. The peak was a 61.8% retracement back to Friday’s prior high, and a 50% retracement of the drop from Sunday night’s highs. Either one qualifies as natural resistance for a correction. There is no requirement to fill the gap back to Friday’s close, or to retest Sunday night’s highs. Modest strength overnight or at Tuesday’s open would be vulnerable to reversing back down.

If Monday’s drop cleared the way for resuming the rally, then the rally’s resumption should be very obvious, gapping up above 836’75 and extending higher. Not resuming Monday’s drop shortly after Tuesday’s open would help Sunday night’s highs to attract a retest. The clearest setup for resuming the drop without bouncing first is to slide immediately through most of Monday afternoon’s range.

Indicators and Internals.
Technical action at the noon hour’s low correctly predicted a bounce. So it is interesting how unremarkable technical action was during the afternoon’s price rise. 3-minute RSI refused to become overbought throughout the entire afternoon. This hardly suggests that buyers were sponsoring the move, instead of price simply reacting to the noon hour’s positive divergence at support.

Tuesday’s opportunities.
After three days of ranging sideways at new highs, any attempt to resume the rally would be suspicious, and likely to fail. For similar reasons, sellers won’t have much credibility if a probe of Monday’s lows doesn’t develop quickly into a noticeable downleg. A fourth consecutive ranging session is possible, just not likely with only three days remaining before a three-day holiday weekend – and quarterly earnings reports on their way.[/pay]