Trading Plan for 9/17

If not for the DC navy yard shootings… then would the retracement of Larry Summers’ news have been shallower? I wonder whether there would there have been a retracement at all, since the pullback’s measurements were normal. Perhaps the effect simply prevented the correction from ending sooner.

Pattern points… (Setups and technicals)[pay]
The week was greeted with the shocking news of Larry Summers withdrawing from consideration to replace Bernanke. S&P’s soared 21-22 points to 1703.75 as soon as they were allowed to trade. Shocking news of shootings at the D.C. navy shipyard greeted the open.

Fully discounted bullish news is vulnerable to being retraced. The shootings could have added a lot more fuel to the fire than just declining through the day to 1688.00. But that was a normal 61.8% correction of intraday movement.

This week’s expiration exacerbated the effect of blind-siding the market. It will probably contribute to more volatility. Both the gaps back down to Friday’s 1681.50 close and Monday’s 1699.50 open want to be filled. No particular sequence is required, but I suspect the first one will launch a more substantial trend in the opposite direction.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Monday’s closing action didn’t trend down, but its bounce only probed back above prior lows. Gapping open Tuesday above Monday afternoon’s 1695.50 high would still be credible for triggering a session-long rally. Gapping up is also the only way for a rally to gain traction, since despite closing well into positive territory, Monday’s buyers gained no traction for their efforts. [/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.