Trading Plan for 9/15
[pay]Pattern notes.
S&Ps gapped down 25 points Sunday night and extended 20 points further, reversing from Friday’s ESz 1258’50 close down to 1215’50. This retested Thursday’s opening gap down, and also the prior Friday’s low. Retests of both were required. And so is there eventual break.
Sunday’s open gapped under a prior low from a prior high. This pattern requires so much selling pressure that it is generally followed by another downleg. The next downleg is a function of the first one, and it’s measurements are already staggering – if that is actually the first downleg. It is possible that Monday’s cash session will gap under prior lows and produce a much larger first leg down.
Bottom-fishing might be expected since several recent attempts have been rewarding (to those who already sold). In case of a gap down Monday, I don’t expect to find much justification for more than a shallow bounce or two. And in case the overnight range is defined by 1220’00-1235’00, an early dive to new lows would be probable.
Bounces defined by hours instead of minutes won’t be likely until after probing 1200’00. And disaster won’t be averted (again) – at least momentarily (again) – without recovering above the 1243’00 area. The largest players have their largest investments exposed beyond their largest risk tolerances. The fluctuations will be enormous as these players, investments and risks are made smaller throughout the day.
Indicators and Internals.
There hasn’t yet been enough time elapsed since the gap down for 3-min RSI to become useful. But a bounce back up to 1233’00 is now testing 1222’00 where 1-min RSI is indicating the vulnerability to a bounce, which the pattern also has potential. The same pattern expects the decline’s pace to accelerate under 1220’00, but keep an eye on technicals then.
Monday’s opening setup.
I’ll have more comments here and in the charting room overnight. Soon we’ll know which way the LEH situation went, and perhaps also BAC’s overture to MER. Two econ reports are due pre-open, and they’re among the last publicly available metrics that Tuesday’s FOMC meeting will consider. Stay-tuned for the latest.[/pay]