Trading Plan for 9/29

[pay]Pattern notes.
Friday’s close recovered what had opened to be a substantial loss. The session’s steady buying was gutsy considering the uncertainty of timing a bailout deal – not that any deal is a winner, but at least the playing field and risk measures could be defined. The environment included bearish focus towards two banks on either side of the Atlantic. Sometimes “gutsy” is bullish. Other times it is misplaced optimism.

If Friday’s recovery was the bullish kind of gutsy, then Monday’s open will need to gap up above Thursday’s ESz 1225’00 prior highs. That would reflect the fresh buyer that the rally now needs, because Friday’s last-hour rally expended more buying pressure than it created.

Friday’s buyers are expended for three reasons: First, the 23-point surge to 1221’00 probed at least 61.8% of the consolidation at Thursday’s highs, and held it on a closing basis, which qualifies as a complete correction. Second, the surge filled the gap back to Thursday’s close, neutralizing its magnetic attraction to higher prices. And third, S&Ps dipped after the cash session close, back under Thursday’s last relative high at 1216’75, robbing buyers of their traction. Almost any weakness at Monday’s open would be bearish.

A gap up would be bulish. And by the way, it would be a new rally leg. It would not be an extension of the leg that began very late Wednesday. The distinction is important, because it would mean that a gap up’s retracement can’t double-back under Friday’s high – at least, not by very much or for very long, and not during any relevant timing window. Otherwise, the rally’s resumption would have failed, and a new downleg would be required to take its place.

Indicators and Internals.
NYSE down volume was 50% greater than up volume Friday. Yet it produced two times more declining issues than advancers. Overbought 3-min RSI did accompany the last-minute high, timing that doesn’t necessarily require retesting the last-minute high.

Monday’s opportunities.
A bailout deal is reportedly moving closer as of Sunday morning. It could be all but finalized in time for a relief rally Sunday night. Perhaps Friday’s recovery positioned the market favorably to leverage an overnight relief rally into a gap up Monday. There’s room up to 1234’00 and 1245’00. There is also a “V” bottom outstanding from the recent 1136’50 low that wants to be retested, waiting for an excuse and a clean shot.[/pay]