Trading Plan for 6/13

[pay]Pattern notes.
A close above ESu 1342’50 would have signaled that Thursday’s new low had formed a durable bottom by holding its retest of Wednesday’s low. Wednesday’s low is relevant because that’s when the decline’s long-standing 1337’50 target was met. Thursday’s new low retested this target, and also tested a new low that had printed overnight.

Every probe under prior lows weakens the support it can offer against future probes, so it is not enough simply to close back above them – the close must be so far away from the lows as to neutralize any magnetic attraction to retesting them. A close above 1342’50 would have accomplished this, but S&Ps were still testing this level at the cash session close. The futures close was no clearer.

I noted at the time that this wouldn’t prevent an attempt to extend higher, and overnight price action since then has ranged widely between 1339’00-1347’25. Currently the range’s upper-end is being attacked again. But Thursday’s failure to signal a clear bottom has done two things. Thing number one raised the bottom’s standard of proof to at least 1353’00. Thing number two made a probe of new lows likely.

It is possible that Thursday’s probing and recovery did form a durable bottom. A strong rally Friday on much higher volume would be difficult to argue against. And a durable bottom here would mean a multi-week rally back into the 1400‘s above May’s prior highs (i.e. “multi-century mark”). But since no bottom here and now could mean a “crash” is developing, I want to see more evidence that buyers are in control before I become too bullish.

Indicators and Internals.
45% more NYSE up volume than down volume produced only 10% more advancing issues than decliners. Friday’s session is obligated to reward Thursday’s sellers for their relative productivity. Meanwhile, the 3-minute RSI was oversold and accompanying S&Ps to session lows that all but require a retest.

Friday’s opening setup.
CPI is due one hour before the cash session open at 8:30 and then Consumer Sentiment is due 30 minutes after the open at 10:00. Both are high-profile economic data, and the latter’s post-open timing can accelerate or reverse any initial trending underway. A firm or higher open could be very different less than an hour later, regardless of how much strength is displayed. But this being a Friday, the morning’s bias signal is likely to persist well past the noon hour. And at this stage of the decline, the close could be significantly above or below yesterday’s.[/pay]