How recent stock weakness sets up Friday's price action

Price action and setup analysis

Stock index, chart, technical analysis Stock index, chart, technical analysis

If Thursday’s last-minute slide was weak-handed pessimism… then must Friday’s open reverse up immediately? Extending lower during the morning could still be recovered, but that’s a dangerous bet without yet being signaled.

Pattern points… (Setups and technicals)

Thursday’s second consecutive lower close confirms Wednesday’s breakout close under 1397.00-1397.75. Regardless of the 1348.00 that it put into play, at least a third lower close is all but required. But not necessarily a consecutive lower close.

Having signaled and confirmed objectives below, sellers might now rest on their laurels to refuel, allowing a counter-trend bounce to trap longs. No bounce is required, and the alternative at this stage is often to aggressively extend the confirmed signal — i.e. trade down painfully.

There is no unfinished business below. Thursday’s slides came too late to trigger a pattern, and its last-minute oversold RSIs don’t require a retest. The pattern is vulnerable nevertheless to extending down — sharply, and by gapping — and extending down with the trend is more likely. But gapping down, perhaps sharply, is essentially the only path lower to avoid a significant corrective bounce through Friday morning.

What’s Next… (Outlook and opportunities)

Thursday afternoon’s sellers may have feared that Wednesday’s plunge was about to repeat. They may have accelerated week-end selling ahead of a perceived rush Friday, in case it is exacerbated by sellers that fear the weekend’s impending illiquidity. All of that fear often soon leads to a low. Other times it is justified, a long time coming.

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.

About the Author
Rod David

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog

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