Day Trading Signals and Strategy - 03-24-2016

Proper context can start the day with a solid win and make all the difference.

CHARTROOM LINK (pre-open Market Tour begins at 8:55 ET)

Through the prior close... Wednesday's 5-6 point gap down to 2036.50 extended down through the morning to test 2029.00. Bouncing to within 2-3 ticks of 2036.50 said its goodbyes, and then slid to 2025.00 before the close. A late bounce stopped 2-3 ticks of 2030.75, whose recovery could have invalidated the breakout. Overnight action's new info... The slide resumed without delay, and has extended down without relent. Eventually ranging around this morning's 2019.25 bias-down target has touched 2017.50. If, then... Two days ago I listed the reasons why a downturn had become overwhelmingly likely. I included the warning that not quickly exploiting the list would become likelier to resume the rally. Last night's slide suggests that window may be closed. But now two new factors might inhibit the 's near-term momentum. First is the 2017.00-2020.00 overnight lows, which we had discussed already as natural support. The "lower prior highs" could interrupt the likelier 2009.00 objective. Second is the overnight slide's relentlessness, a setup which always is vulnerable to inverting at the open. Put all of this into the context of being hours away from a 3-day holiday weekend. and at least we can give more credibility to any opening trending. First Trade... Exiting the open at 9:45 under 2017.00 would be unlikely to recover the 2019.25 bias-down target through 10:15, which would renew the bias-down signal. Exiting the open above 2028.50 would be unlikely to trigger the 2025.25 bias-down signal at all.

Overlapping and congestion won't easily let go. The potential target of a corrective bounce is 2020.50. But what is the potential FOR a corrective bounce? Potential for a corrective bounce had subsided after the open's blip-down to 2012.25 was recovered up to 2018.25. Support at 2015.25 was probed by 1 point. Bounce potential was reignited by recovering that probe as quickly as it had developed. Its reaction has now touched 2019.25. The potential FOR a corrective bounce is greater, meaning so is the potential of 2020.50. Regardless, the open's congestion and overlapping creates an attraction that will likely attract price back down to it. And likely also through it, down to the 2009.00 objective.

Corrective bounce potential fully tested. Corrective bounce potential up to 2020.50 was realized fully. Every bar printing above it by as much as 1 point up to also overlapped it. All of which developed during the bias-down environment, which was exited back under its 2019.25 bias-down target.

There is no bearish reason to bounce higher. Sellers don't require further refueling, downlegs don't need higher retracements. So bouncing any higher would marginalize sellers for the day.

Meanwhile, the bounce developed entirely during the bias-down environment. Its sponsorship was weak-handed. Being just hours away from the 3-day holiday weekend, weak-handed sponsorship may continue to find less opposition. So, a bigger bounce would marginalize sellers for the day. Just retesting the high wouldn't qualify as a bounce. Piercing the bounce's 2021.50 high wouldn't necessarily be a bigger bounce. Its retest could still hold. Having said that, and having reacted down already to 2016.00, just delaying the decline's resumption to its 2009.00 target would undermine the downside, anyway.

THU afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above  2030.00 2020.50 ...would target  2036.25  2027.00 Bias-down: under  2023.50  2014.25 ...would target 2018.50  2009.00 Signal status: NO-BIAS, TESTED BIAS-UP SIGNAL FAQ INTRO VIDEOS #1 and #2 1. At 1:20, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target. 2. Not triggering either bias signal at 1:20 would be "no-bias," and the bias signals should define the bias environment's range. -- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias. 3. Touching the bias signal within 3 minutes either way of 1:20 would invoke a grace period through 1:30 to trigger a late signal. -- "Late" signals don't require testing the opposite bias signal, but it's still likely. 4. Still testing the bias signal at 1:30 after invoking the grace period would trigger "noN-bias," with no bias influence.

Being the day before a 3-day holiday weekend, Thursday's sponsorship was by definition weak-handed. Bouncing during the morning's bias-down environment was all the more so. Reversing down to the decline's 2009.00 objective could have ended the pullback. But the bounce extended. The morning's bounce had created room to absorb selling pressure, but that room had to be exploited without delay. The afternoon's extended bounce made the mistake of closing at 2027.00 resistance (cash session close). Counter-intuitively, rather than create extra room to absorb selling, sellers were refueled. Holding 2009.00 is now only more difficult.

That potential for not holding 2009.00 hasn't been in our discussions previously. Stretching the rubber band so much tighter Thursday has introduced another template seeking bigger objectives than just neutralizing "lower prior highs," looking instead to fill gaps. The nearest qualifying objective is 1980.00.

What if 2009.00 is not tested next? The gap back down to Thursday's 2015.00 open should facilitate that. But not already reversing down at Monday's open could extend the bounce to 2039.00-2041.00 while still being only a temporary correction. Even if sellers weren't obviously in control at Monday's open, I would still be skeptical of further upside if Monday's open wasn't already obviously extending higher. Details and other markets coverage are discussed in the post-market Wrap recording here.

REMINDER: NO SATURDAY REVIEW ON HOLIDAY WEEKENDS. CHARTROOM WILL RE-OPEN SUNDAY NIGHT.