Trading Plan for 6/3
[pay]Pattern notes.
Last week’s rally was always considered to be only a corrective bounce. Monday’s ESm 1377’50 low was 30 points under Thursday’s high, only 5 points above last Monday’s low. So, is it possible that the decline hasn’t actually resumed? Actually, a 61.8% retracement of last week’s rally was allowed without signaling the decline had resumed. That level is around 1385’50 which was tested throughout Monday’s final minutes.
Nevertheless, the morning’s drop had fallen far enough that sellers gained traction on its break. It is counterintuitive, but their traction allows room for a bounce. S&Ps surged up to 1387’50 but still closed under 1385’50. There was still nothing accumulative about the pattern off of Monday’s low – and the late-afternoon surge adds the unhealthy combination of being overly-optimistic. None of which requires the decline to resume immediately, but these are the characteristics of a bounce and not of a sustained rally.
Indicators and Internals.
MACD & RSI deteriorated into Monday’s last-minute surge. Some sort of expanded volatility had been likely, if not necessary, since technicals had become mired in a non-volatile range. And that setup tends to resolve by a false breakout in one direction that reverses more substantially in the opposite direction. Meanwhile Monday’s volume was relatively light. The larger intraday move was down, but more time was spent retracing up, so the lower volume reflects more poorly on buyers.
Tuesday’s opening setup.
A couple of retail reports are due pre-open Tuesday. The extra room for a bounce still has room up to 1390’00, but there is no requirement for any further bounce. Back under 1382’50 should reinstate the decline. If the decline isn’t obviously back in-play before Tuesday’s open, then the bounce would be more likely first.[/pay]