Trading Plan for 8/24

What’s rare than a natural disaster?… A natural disaster that has market relevance. Reactions to it can be relevant, but only because it tends to be exaggerated. Selling that might have happened later is accelerated, along with other selling that wouldn’t have happened at all. An artificial downleg sponsored by weak hands becomes easy prey. [pay]

Pattern points… (Setups and technicals)
The easy prey can extend too far too quickly, and itself become easy prey. Tuesday’s 8-1/2 point spike down to 1138.00 was consolidated, retested, and then reversed to 1159.00-1160.00. That’s a lot of buying energy to expend, spanning the session’s entire last 60-90 minutes.

That included a test of last Thursday’s 1159.75 opening print that had gapped down 30 points. It is natural resistance. And it was still being tested at Tuesday’s close, instead of being recovered cleanly. Meanwhile, RSIs were diverging negatively.

Closing at resistance essentially requires the trend to extend higher without delay, if were going to extend higher at all. Extending the rally into Wednesday morning could reach 1165.00, probably 1173.50-1175.00, and possibly 1185.00.

Reversing down without extending any higher would not be done simply. An immediate break or overnight dip could test 1150.00 as support. A downleg could still recover from anywhere above 1145.00-1146.00.

What’s Next… (Outlook and opportunities)
Tuesday’s late extended surge was fueled in part by artificial buying, covering the artificial selling. But there can be more, and probably will be through Wednesday morning, so long as the open is not selling off considerably. And it should be one or the other – opening only flat-to-weaker is unlikely… The post-close Market Wrap is linked here.[/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.