Trading Plan for 7/21

[pay]Pattern notes.
The nearby chart depicts last Monday’s opening gap up in a downtrend and Friday’s close above Monday’s high. If anything makes this impressive, it is the week’s interim new low. The setup is a “pivot reversal” when it appears on a single daily bar, and it is often immediately productive, but rarely lasting. The opposite is often true for weekly setups – the recovery might not extend higher without retesting the low, but buyers are trying.

Meanwhile there is follow-through from Friday’s session to be concerned with. A gap above Thursday’s ESu 1263’00 prior high would need to be maintained through 10:15 to avoid jump-starting a drop back to Thursday’s 1240’00 lows. Maintaining a gap up would likely trend up throughout the day. But the more likely open is flat to lower, which would generate little interest for trending before Monday afternoon, or later.

I would like to see a flat to lower morning that attracts sellers into the afternoon, falling further on Tuesday. The bullish setup Wednesday would be compelling, with the afternoon’s Beige Book helping to trigger a brief probe of new lows that lets a bottom form. We all know the risk, of course, which is that new lows attract new sellers. But the bigger risk would be rallying much further first, and eventually attacking last week’s lows as part of a new downleg.

Indicators and Internals.
Internal spreads were lopsided Friday with 60% more NYSE up volume than down volume producing 20% more advancing issues than decliners. That’s not very predictive for an expiration session or an inside day, but it certainly doesn’t reflect accumulation.

Monday’s opening setup.
The week doesn’t often start with an econ report but this one does, LEI at 10:00. The timing tends often either to accelerate or reverse any initial trending underway. Overnight price action should be very revealing of what sort of volatility to expect Monday. Currently I expect very little, but that’s not likely to be the case if S&Ps trade overnight beyond either end of Friday’s range.[/pay]