Trading Plan for 6/16

[pay]Pattern notes.
The decline’s long-standing target was ESu 1337’50, which was met finally Wednesday by a last-hour break at its last-minute low. It was retested Thursday during the last hour’s brief dip into negative territory. The target has so far held two tests through more than two days that produced two higher highs. So, can we call this a durable bottom?

My last post Friday detailed much of the argument, concluding with the “ineffectual optimism” label. Then the market rallied to new session highs. S&P cash closed at the session high, and S&P futures added more than 1 point to the cash session’s gain. This didn’t prevent slipping 5 points to close back under the morning’s high. This is just more “ineffectual optimism” unless rejected by new highs maintained through Monday’s cash session open.

Actually, the S&P E-mini alone added more than 1 point after Friday’s cash session close. The main contract peaked 50 cents lower, reflecting higher optimism among retail participants. The mini then fell to 1357’75 while the main contract reached only 1359’50, which might foreshadow the relative reaction to this excessive optimism. It’s the same optimism that we monitored all the way down, the same optimism that undermines the credibility of any bottoming already attempted, and the same optimism that makes the current bounce suspicious.

We’ll know more at Sunday night’s Globex open and then after Monday’s cash session open. But we’ll be looking for signs of whether Friday afternoon’s rally was overly-optimistic, or whether the optimism hasn’t yet reached excessive levels.

Indicators and Internals.
Friday’s internal spreads were wide, which is understandable considering that the entire session was spent in positive territory and closed at session highs. But 4 times more NYSE up volume than down produced 3 times more advancing issues than decliners. Monday’s session is obligated to reward Friday’s sellers for their relative productivity unless an immediate recovery above Friday’s highs were maintained through the 10:15 timing window.

Monday’s opening setup.
All of Friday afternoon’s gain doesn’t need to be rejected for sellers to prove they are retaking control. But a gap left outstanding back to Friday’s close will want to be filled unless the 10:15 timing window were exited under 1353’00, and preferably under 1351’00. The “Friday Factor” raises this possibility since both the open and closing 15 minutes trended down, making Monday’s opening 15 minutes likely to duplicate. Rallying instead would overcome the Friday Factor, and probably also neutralize the obligation to reward Friday’s sellers for their relative productivity.[/pay]