Trading Plan for 7/14

[pay]Pattern notes.
Are sellers losing traction? Friday’s close and open each were about ESu 1239’75. There was no lasting effect to whatever motivated the open’s 15-point gap down. This is despite gapping down, probing new lows, trading exclusively (all but three minutes) in negative territory and making a new low close. The gap down might be dismissed as only noise because it was at the decline’s prior intraday lows and not below. Ditto for the session’s 15-point loss.

This setup tends to accompany a trend’s reversal, but the exception tends to accompany the trend’s dramatic resumption, in either case by forcefully rejecting the opposite premise. The former scenario’s reversal begins almost immediately with a close (if not gap) above the setup, Friday’s 1258’25 high. The latter scenario’s dramatic resumption would gap under Friday’s 1225’50 low, but almost any delay in rallying would mean buyers hadn’t gained traction and that sellers’ didn’t need new traction to maintain control. Perhaps the only delay to resolve bullishly would be to recover from another probe of new lows.

A bottom here would leave behind no unfinished business below. Even in the event of gapping up Monday, the resulting gap back to Friday’s close would not require being filled – not if Monday’s session were to maintain a gap above Friday’s highs. This is as a function of the particular pattern and its appearance going into the weekend. But it must be rejected coming out of the weekend to avoid resuming the trend with a vengeance.

The opportunity for a reversal is always offset by the opportunity to resume trending. Missing this opportunity to reverse sharply higher would default to falling sharply instead. Sellers didn’t gain traction Friday, but neither did buyers. And one or the other will be well-rewarded for being the first to fill the vacuum.

Indicators and Internals.
Sellers traction was undermined Friday also by 3 times more NYSE down volume than up volume producing only 2 times more declining issues than advancers. This tends to obligate rewarding Friday’s buyers for their relative productivity,  excepted only by maintaining a gap under Friday’s lows. MACD & RSI were mixed at Friday afternoon’s surge peaked, so there is no requirement for retesting its high.

Monday’s opening setup.
Weekend fallout from Indymac and Yahoo might weigh on S&Ps at Sunday night’s open. Since Friday’s 1225’50 low produced a 33-point bounce, its retest at any other time probably couldn’t be completed by only a slim margin. A 4-point margin down to 1221’50 would be narrow enough not to be a “new Globex trend extreme” that would doom an overnight recovery attempt. Any deeper would start to stretch buyers too thinly to depend upon them repeating Friday’s bravery much before 1194’00.[/pay]