Trading Plan for 6/23

[pay]Pattern notes.
Was Monday’s drop a breakout, or was a downleg already underway? This would tell us whether the decline requires a lower close Tuesday, i.e. whether closing lower Tuesday would confirm a fresh breakout, i.e. whether not closing lower would suggest sellers might be too extended. Reverse-engineering from a bearish opinion would tell us to sell bounces if offered the opportunity.

There was a multi-session bounce underway through Friday (a session’s high exceeded the prior session’s high). But Friday’s high didn’t recover last Monday afternoon’s prior high, so there was no actual pattern for this Monday’s break to break. The multi-session bounce (Thursday and Friday) only paused the decline – it wasn’t a detour.

Monday’s open gapped down through prior lows, and extended down throughout the day. Lower lows are all but required, although not necessarily the next session. If not, then the next session tends to bounce only modestly. Immediate lower lows tend either to bottom quickly for an intraday corrective bounce, or else rival the prior session’s decline. This latter, more bearish resolution tends to begin by gapping down.

Two targets under Monday morning’s lows were 888’25 (highlighted yellow on the second chart) and 881’25 (highlighted red). The first target was finally met by a last-minute break, and its test held as support. Further weakness Tuesday down to 881’25 would likely produce a bounce, unless the open gaps under it.

Only a gap up above 894’00-895’00 would actually detour the decline, perhaps up to 905’00. Regardless of its degree, follow-through would be temporary since a gap up would still leave unfinished business at the gap open down at Monday’s 888’25 close. The false break from May’s pattern has been retraced back into the pattern, making the ultimate and eventual break under its lows only a formality.

Indicators and Internals.
Every chance for RSI to diverge positively Monday was negated by higher lows, where a lower low was needed. Every extreme oversold 3-minute RSI avoided printing with the most recent price low by a single bar. Only simultaneously oversold 1-minute and 3-minute RSIs doomed any intraday bounce to failure. Monday’s drop was plain and simple selling, not reliant upon tactics to keep refueling. There was no unfinished business at the close.

Tuesday’s opportunities.
Several econ reports are scattered through the open and the FOMC meeting begins. The President gives a press conference at 12:30, while more debt is auctioned at 1:00. Anxiousness ahead of these events probably didn’t exacerbate Monday’s drop, but they could save it Tuesday. Gapping down to and through 881’25 would reflect too much irritation to react well in almost any event. Otherwise, not gapping down would be vulnerable to bouncing intraday.[/pay]