Trading Plan for 6/9

If this rally were a shark… then it would drown if it ever stopped swimming. Many sharks must keep moving and force water through their gills to get oxygen. The market’s current upleg has extended higher without each session’s buyers gaining traction for their morning efforts. Recovering from opening dips has led to flat afternoons, leading either to another opening dip or else gapping up. This pattern produces two possible paths down. Two and a half.

Pattern points… (Setups and technicals)[pay]
Not gaining traction for morning recoveries means that those buyers were already rewarded by the recovery, itself. Their flat afternoons belie this. Extending higher without delay from a standing stop requires new sponsorship, which is easily identified by having a different character than the prior afternoon’s ranging. That means gapping up.

Shallow opening weakness that tries to recover intraday won’t, because the next day’s shallowness is still part of the prior day’s narrow ranging. A deeper dip is required to replace the prior afternoon’s complacency with new sponsorship.

The first possible path down from the prior afternoon’s ranging would fail to maintain a gap up through the opening 15 minutes of volatility. The gap’s sponsorship would be weak-handed, and the prior afternoon’s narrow ranging could offer only temporary support. The second possible path down would open shallowly lower from the prior afternoon’s ranging.

That second possible path down has two branches. The first would recover back into positive territory and try trending. Big mistake, without dropping deeply enough to trap enough shorts to refuel. The second branch would simply continue extending the slightly weaker open down and down, turning the weak open into a magnet for pent-up selling.

Friday’s last-minute rally originated from a late dip. Its new high close wasn’t quite the “short-squeeze of the century” I had noted as possible for the day. But it was still weak-handed for originating after the final hour had begun.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Trends don’t tend to end with new extreme closes on Fridays, but they do become vulnerable to near-term reactions down. Last week did, and although that didn’t extend past the morning, it did require the shark to keep swimming[/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.