Trading Plan for 4/7

Another inappropriate-timed downdraft? Tuesday’s drop was recovered overnight. It refuted the drop, but didn’t last. Wednesday’s drop retraced it. Is that just “temporary,” too? [pay]

Pattern points… (Setups and technicals)
Wednesday’s open was already trying to absorb a pullback off the 1336.50 pre-open high. The rest of the morning played defense down to the noon hour’s 1326.75 low. But for a few, otherwise irrelevant ticks, it may as well have been Tuesday’s 1326.00 low.

After probing Tuesday’s 1334.25 interim high, there was no bullish reason for another drop to nearly revisit the 1326.00 prior low. That helps to explain why Wednesday afternoon’s bounce up to 1333.00 peaked upon retracing 61.8% of the morning’s drop.

The afternoon’s bounce was too shallow for too long and robbed buyers of their traction. Holding above 1332.25 through 3:20, or extending above 1333.50 would have launched a short-squeeze to new session highs. The result was quite different. Wednesday’s last tick during the cash session was 1332.00, but futures ticked down to 1328.75.

Wednesday’s closing dip can be rejected, and the earlier rally effort can be reinstated, just like Tuesday’s. Just like Tuesday’s, by gapping up sufficiently. Perhaps also like Tuesday’s, by once again failing, but probably not until testing new highs. Otherwise, the template’s alternative is immediate weakness. And if not recovered just as quickly, immediate weakness Thursday could extend down into and out of the weekend.
What’s Next… (Outlook and opportunities)
Maintaining a gap up Thursday above 1334.25 would make extending to new highs only a formality. New highs above 1338.00 could reach 1340.00 before technical deterioration started signaling a peak. However, not immediately recovering Wednesday’s post-close dip would target last Thursday’s 1322.00 close. And not immediately recovering the fresh low would trigger a multi-session decline.[/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.