Trading Plan for 9/28

About that rally… Maybe it’s only a bounce. Tuesday’s late plunge seemed to prove the adage, “the bigger they are, the harder they fall.” Actually, the bigger they are, the more room there is to absorb the fall. If the drop has bearish implications, that should be obvious quickly.[pay]

Pattern points… (Setups and technicals)
Tuesday’s rally was not durable, even before it began. It was launched from an unstable base, exceeded its likeliest objectives (1143.00 and 1153.00), and extended higher overnight instead of intraday.

Then pre-open weakness bottomed before allowing buyers to be refueled (down to 1174.00). That didn’t prevent the morning’s rally to fulfill the highest corrective bounce target (1186.00), but it didn’t prevent it from pushing back down. And the afternoon’s fresh high (to 1190.00) originated during a no-bias environment, requiring its failure.

Buyers didn’t gain traction for their efforts, thanks simply to rejecting the afternoon’s fresh high. But sellers didn’t gain traction either, despite their 27-point late-afternoon dive which bounced in time to end the day testing 1170.00 into the close.

A rally can resume in this pattern only by gapping up above the prior morning’s high (1187.00). Shallower opening strength might make it back to Tuesday’s noon hour low (1181.00), but any higher would be tentative. And almost any further weakness would be likely to trend down.

What’s Next… (Outlook and opportunities)
The crowd starts to thin after noon when many Jewish participants leave early to prepare for the holiday’s evening worship. Liquidity starts to thin, too. Trending becomes difficult to start, and even more difficult to stop… The Market Wrap recording has a much more comprehensive synopsis. Keep checking the blog’s sidebar for its link. [/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.