Trading Plan for 7/15
[pay]Pattern notes.
Monday’s mid-afternoon highs formed a distributive pattern while behaving poorly in a relevant price range. Despite already dropping 9 points, the consequence of the mid-afternoon pattern was a probe of new lows. However, the late timing prevented sellers from delivering that consequence
The lateness also prevented sellers from standing in the way of a 9-point short-squeeze triggered above ESu 1229’50. It was obvious in every way except for the mid-afternoon pattern’s consequence still unfulfilled, and that prevented me from playing it. Remarkably, there was still time to retrace the squeeze back through its origin to 1227’00. The consequence of Monday’s mid-afternoon pattern, i.e. new lows, remains very much alive.
The potential for starting a rally also remains alive, although its breathing is labored. Monday’s Trading Plan described only one scenario for making lemonade out of Monday’s lemony morning dive – probe new lows under 1225’50 and recover back above Thursday’s 1237’00 lows. New lows were probed and Thursday’s lows were recovered. But the probe was too shallow and the recovery didn’t last through the close. The miss can be recouped at Tuesday’s open, but the window starts slamming shut soon after.
Besides, I don’t know how durable a bottom or how strong of a rally could form from new lows that continue to reflect optimism better reserved for pullbacks in an uptrend. Instead, buyers are still rushing in to form steep bounces after probing prior lows by 1 or 2 ticks, if at all.
Indicators and Internals.
My internal data is preliminary and not yet confirmed as of this writing. If accurate the spread was wider between declining and advancing issues, than between the down and up volume that produced it. And total volume rose, obligating Tuesday’s session to reward Monday’s sellers for their relative productivity.
Tuesday’s opening setup.
Friday and Monday’s lows in the 1225’00 area still needs to be probed by at least several points for any durable bottom to begin. It could be probed more substantially and still recover to form a durable bottom, or not recover and form a steep decline. A gap up or immediate recovery above Monday’s ~1239’00 highs would have potential to rally without probing lower lows first – such is the nuance of expiration week. Tuesday also offers a look at Retail sales, which looked healthy last week. But I will consider each setup and pattern as to whether it is capable of avoiding new lows.[/pay]