Trading Plan for 6/18
[pay]Pattern notes.
Monday afternoon’s brief new high was rejected by closing back under prior highs. No prior low was harmed in the process, so another rally attempt was still possible. S&Ps did rally overnight, and surged to ESu 1372’00 before Tuesday’s open. Had this action been sustained in any way, then Monday’s last-minute dip would have been rejected. The excessively optimistic bubble would have gotten a second-wind (sorry) to extend sharply higher.
But the pre-open action wasn’t sustained. The cash session open’s first print at 1368’75 was essentially the same as Monday’s high (1 tick higher), leaving no gap outstanding to magnetically attract price higher and to inhibit a decline. The pre-open high’s “new Globex trend extreme” was ignored in favor of a session-long decline that touched Monday’s 1352’25 low.
The bubble of excessive optimism should pop with a much louder sound than that of Tuesday’s relentlessly steady drip lower. If the actual pop comes Wednesday then it should be in the form of either forcefully rejecting a strong open, or else gapping down sharply. The forceful open could persist into the afternoon before peaking, but a gap down should make Tuesday’s sellers seem like bulls in comparison.
If the bubble isn’t popping, the action would resemble the strong opening scenario, or a recovery from initial weakness. Econ reports are scarce until Thursday, with Friday’s Quadruple Witch expiration no doubt bearing some impact.
Indicators and Internals.
80% more NYSE down volume than up volume produced only 55% more declining issues than advancers. Wednesday’s market is obligated to reward Tuesday’s buyers for their relative productivity, that much is not surprising. But the spread between advancers and decliners isn’t very wide considering a session-long 20-point drop.
Wednesday’s opening setup.
Tuesday’s last leg down targeted ESu 1353’50. The target was overshot momentarily, then recovered at the close. MACD & RSI diverged positively as S&Ps printed a lower low at1351’00 after the Globex open, soon followed by a test of 1355’00. There is room up to 1358’00 as a simple correction of Tuesday’s decline, if not another 4-1/2 points higher. Anything more would start targeting a retest of Tuesday’s pre-open high, and further bubble inflation. [/pay]