Trading Plan for 4/7
[pay]Pattern notes.
Friday’s pattern stuck to its script. Overly-optimistic buyers reacted to the Employment Situation report as expected, and pushed S&Ps up to new highs before the open to form a new Globex trend extreme. Also in-line with expectations was the gain’s rejection back down into negative territory. And the script was completed when sellers failed to gain traction and S&Ps recovered to session highs. Two items weren’t defined going into the session, and the weren’t very well-defined coming out of it: whether the pre-open high would be retested, and whether the close would confirm or invalidate Tuesday’s breakout.
The pre-open high was a knee-jerk reaction the Employment report, a spike up to ESm 1388’00. At least, that’s where the mini contract printed. But that an over-reaction to the large S&P contract which reached only 1385’00. Regardless, S&Ps fell to 1364’25 before attempting to retest pre-open highs, and the recovery reached only 1383’00. This did happen to be the high that printed prior to the Employment report. My rules might allow this to serve by proxy as a retest for the pre-open high, if S&Ps had then closed the session back in negative territory.
This couldn’t have been muddier, since S&P futures did close negative but the underlying cash index did not. Not clearly triggering a setup means the opposite is likely true, that the pre-open high must still be retested during regular trading hours. Closing back under the week’s prior highs would have invalidated Tuesday’s breakout, but the unfinished business at higher levels doesn’t yet allow that to be declared definitively. So another rally attempt is likely, regardless of whether its gain is maintained.
Indicators and internals.
Although NYSE up and down volume were essentially even with each other, the session produced 25% more advancing issues than decliners. That tends to obligate Monday’s session to reward Friday’s buyers for their relative productivity. This might be mitigated somewhat by the day’s relatively low volume, and it would not be required at all if Monday’s open gaps down under Friday’s lows in the ESm 1365’00 area. MACD & RSI diverged positively at the end of Friday afternoon’s pullback, but only on a 1-minute chart, so this buy signal can’t be relied upon to persist through the weekend.
Monday’s opening setup.
No econ reports are due Monday morning. But the quarterly onslaught of earnings reports are fast-approaching. Tuesday promises to be doubly interesting with both a post-open report and then FOMC minutes in the afternoon. So any trending attempted either way Monday find it difficult generating sponsorship to extend very far considering the sizeable unknowns lurking just around the corner. So long as the open doesn’t indicate a gap down, at least one Friday’s reaction highs is likely to be retested.[/pay]