Trading Plan for 7/28
[pay]Pattern notes.
What we do know about the market after Monday’s close is what we did know about it after Friday. What we don’t know is even more interesting: We don’t know whether the three-week rally has ended, but we know Friday’s last-minute surge was false. We don’t know whether Monday’s pre-open high will be retested before a downleg appears, but we know Monday’s close was within its orbit. And we don’t know if a downleg will appear at all, but we know there’s now less support to challenge it.
– If Friday’s last-minute surge to 979’00 were a valid breakout above the session’s range, then it would have been valid confirmation of Thursday’s breakout. Despite Monday’s 984’00 pre-open higher high, the close was a recovery from the morning’s drop. That’s not the stuff of a valid breakout.
– Monday’s 984’00 pre-open higher high is a “new Globex trend extreme” which requires a retest intraday. Its retest isn’t required before a downleg begins, but it’s helpful. It’s usually retested first, when the prior low remains unbroken – in this case, Thursday night’s ~963’00.
– Thursday night’s ~963’00 low already had its support chipped away Friday morning. It’s not likely to offer much support if tested. Friday’s noon hour ranging was the only interim support, and its support was neutralized by testing Monday morning at 969’50. If a downleg were to appear, it could easily be almost a straight drop down to last week’s “lower prior highs” at 954’50.
Monday’s gap down and session-long ranging in negative territory was “ineffectual pessimism.” Appearing in a downtrend, this setup would almost surely identify a bottom forming. Appearing in an uptrend off the highs is more a reflection of weakening buying pressure. The burden of proof Monday was on buyers, and they didn’t offer any evidence. Buyers didn’t prevent sellers from extending down – sellers prevented buyers from extending up.
If this rally is going to resume, then it needs new sponsorship. New sponsorship would be evident by the slope steepening. That would be entirely appropriate for the Rubber Band setup now ending. So, while not extending higher at a steeper slope would have meant the Rubber Band was likely to snap down, it now also means the weakening rally wasn’t being rescued by new sponsorship.
Indicators and Internals.
RSIs were deceptive into Monday afternoon’s rally. The 3-minute peaked just before probing oversold, so it was never extended. The 1-minute diverged negatively, but not until after the cash session close, so it doesn’t require a pullback. But neither is very supportive of higher highs, or of higher highs being durable.
Tuesday’s opportunities.
An early retest of Monday’s pre-open 984’00 high would be extra vulnerable to reversing down. Not reversing down from this liberated situation would leave a void, and leave the market to suck in buyers. An overnight test and rejection of 984’00 would serve by proxy as a retest of the “Globex trend extreme,” neutralizing its magnetic attraction. A rally all but depends upon extending higher without delay at an accelerated pace. Missing on any one or two of these elements could find a new direction underway.[/pay]