Trading Plan for 9/21

[pay]Pattern notes.
[As announced last week, futures quotes now use a decimal in place of an apostrophe (except for bonds, which I’ll continue quoting in ticks). Any S&P cash quote will be identified in context. Otherwise, all quotes are basis futures.]

Friday’s expiration session was range bound between 1061-1066, centered around Thursday’s narrow late-afternoon 1062-1064 range. The open’s gap up quickly reversed down from 1 point above 1066 to 1 point under 1061. Several more round trips intraday probed or attacked either end of the range. The last hour slid relentlessly after retesting the open’s high. The cash session’s close was contained within 1062-1064, and the futures close extended down to 1061.

Trending-like price action withing a range is often not trending at all, but noise – even when the trending is from one end of the range to the other, and even when it evolves in a very brief time. Ending at a relevant price point such as 1062-1064 also undermines whether trending is in-play. Extending after the cash session close may also seem like trending, but its timing can mean it is the result of anything but that. And by the way, that post-close extension ending at 1061 was another relevant price point.

The afternoon’s price action developed entirely within the morning’s range, and the entire session developed within Thursday’s range. It was an expiration session, which rarely trends. Trending was spotted in another county at the time, sipping “appletinis” with a woman named Constance. Both Constance and the bartender have provided sworn affidavits to this effect.

No part of Friday’s session was trending.

I don’t mean to beat a dead horse, but it’s sort of important at this stage. Thursday’s new trend high was fought back, and Friday’s session barely fought. Nearly two full weeks of trending were stopped cold by expiration. This suggests strongly that expiration and the latest rally leg shared the same sponsorship. One ends the other.

Indicators and Internals.
RSIs diverged negatively into Friday afternoon’s rally back to session highs. The slide back down to the range’s lower-end adequately fulfilled this signal. In fact, both 1-minute and 3-minute RSIs became oversold at the post-close low. The timing of this setup is too late to be predictive.

However, both the opening and closing 15 minutes of price action each trended down. This “Friday Factor” setup is usually followed by similar price action from Monday’s opening tick – which can still gap up first. I would take this with a grain of salt while expiration is still being unwound. But it would normally argue in favor of selling an opening surge back to Friday’s highs.

Monday’s opportunities.
Leading Indicators is the only econ report due, and it is due after the open, timing that can reverse or accelerate any initial trending. Expiration sessions either trend or they range – this one ranged, by the way – and that characteristic tends to repeat Monday morning. Probes beyond either end of the 1061-1066 range are likely to fail. The range’s upper-end is likely to be tested, first.

Breaking through it would target 1078-1079 and would be likely to reverse back into Friday’s range, unless the move extended to close above 1080. Dropping first Monday down to 1047-1049 isn’t likely, not since Friday’s last-minute action wasn’t trending. Anyway, an opening drop would be likely to recover before breaking under 1046, because any lower would give sellers traction. All in good time, but probably not quite yet.[/pay]