Trading Plan for 6/8

[pay]Pattern notes.
Friday afternoon’s price action may have seemed relatively benign. Its range wasn’t very narrow, 6 points either way of Thursday’s close. But the afternoon’s range was narrow relative to the Employment report’s reaction, and to its rejection through the cash session’s open. Perhaps most decepective of all was the close being nearly unchanged.

The relevance of these normal characteristics is defined by the what the open attempted, and failed. Its surge made new trend highs intraday (highlighted pink) and yet closed back under the trend’s high close (circled green). This is the basis for a “Gotcha!” setup, which points down immediately the following day.

One of the Gotcha’s two other elements is the origin from under prior highs (circled red). The final requirement is to close back under the trend’s 943’00 high close (still circled green). The Gotcha setup is already influential before the close, so there was a lot of selling pressure available. And after such a big rejection that morning, the afternoon had every right to extend down. But sellers were patient, leaving that selling pressure on the table to attract price down Monday.

The failed test of prior highs formed the basis of Gotcha’s setup. A recovery above prior highs would form Gotcha’s failure. Otherwise, a retest of 930’00 should offer little support on the way down to 917’00. Below there on a closing basis would just be a matter of time and of timing before extending lower. The breakout from May’s Descending Triangle is vulnerable to reversing down sharply if buyers lose traction, and sellers gaining traction is just a formality.

The pattern’s middle leg (first leg not shown on the next chart) was already tested as support after June’s breakout attempt. Its retest would offer less support, if any, and the 917’00 target would break under it. The Descending Triangle’s reversal would next target the pattern’s 880’00 area low.

Indicators and Internals.
Technicals improved into the afternoon’s lower lows, and their positive divergence produced an 8-point bounce into the closing position-squaring. That bounce peaked at 943’00 whose recovery would have invalidated the Gotcha setup. But there is no unfinished business from technicals.

Monday’s opportunities.
Gotcha’s most important effect is its immediate follow-through. So, not gapping down or otherwise breaking sharply lower Monday would raise a red flag as to whether the setup had fully formed. Friday’s pre-open surge on the Employment Report doesn’t require a retest, but it would be a likely objective if sellers aren’t retaking control.[/pay]