Trading Plan for 7/20
[pay]About that close (How the prior session ended)
Monday’s price action was on-track to form a Pivot Reversal: Gap up in a downtrend, reverse to new trend lows intraday, then recover to close above the morning’s high. At least two of its elements were lacking (the shallow new trend low and the weak intraday volume).
Forming a Pivot Reversal with these elements would have been surprising. This made the setup’s final element unlikely to hold if it appeared at all – a probe above the morning’s 1069.00 high. So fresh session highs up to 1071.00 reacted down.
Pattern points (And technical influences)
Avoiding a probe of the morning’s high would have left the Pivot Reversal lacking that element. Closing under the morning’s high would not have formed a Pivot Reversal, so there wouldn’t have been one to fail. But the high was probed, and it held, forming a failed Pivot Reversal. And it has very bearish implications.
The fresh session high’s reaction back down happened to be during the 3:10-3:20 timing window. Yet another failure – this time, it is Monday’s late-afternoon buyers who expended that energy for nothing. The failure’s timing confirmed that buyers weren’t gaining traction. The failed Pivot Reversal’s very bearish resolution was all but assured.
IBM’s earnings pushed S&Ps lower to 1062.25 into the futures close. And then down to 1060.00 afterward. Simultaneously oversold RSIs there make the pattern vulnerable to a bounce.
Regardless, support at 1060.00 has been chipped away, making new lows likely. If the 1052.25 bias-down target doesn’t end this leg of the drop, then its next objective is under 1040.00. Recovering Monday’s 1071.00 high would insert a detour.
Bottom line (My underlying premise)
Expiration sessions rarely contain a trend extreme. Monday’s retest might have sufficed, but its margin was so shallow. Despite it all, a rally would get a benefit of the doubt. Otherwise, the trend points down, and seems already to be underway. [/pay]
Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.