Trading Plan for 7/3
[pay]Pattern notes.
Usually overnight price action is unremarkable ahead of the Employment Situation report. Last night’s pattern didn’t stray very far from the template. Yesterday’s drop had stopped upon touching Tuesday’s ESu 1261’00 low. A 7-point gain overnight was retraced entirely – and not 1 tick more – then recovered back to new session highs at 1268’50. That didn’t last long either, as S&Ps have settled in the 1263’50 area.
Yesterday’s complete retracement of Tuesday’s recovery isn’t bullish. Coming ahead of the Employment report, the round-trip’s bearishness might only be a criticism of Tuesday’s intraday recovery. That might seem like a distinction without difference since Tuesday’s recovery was largely the basis for any bullish posture. But the difference between extending Wednesday’s drop instead of Tuesday’s drop is the opportunity for a near-term bottom.
It’s not an opportunity that will last long, and that’s not entirely because of the shortened session (today’s close is at 1:00). Knee-jerk selling on this morning’s news could bottom credibly from 1257’00 or 1251’00. There are lower targets that would also allow a bottom, but too little time to expect their recovery. Knee-jerk buying would target either 1271’00 or 1277’50, but only ensure a more solid downleg to come.
Indicators and Internals.
Yesterday’s wide internal spreads were a little lopsided, so there is some obligation to reward Wednesday’s buyers for their relative productivity. MACD & RSI have largely settled into mid-range after fulfilling existing signals and divergences, awaiting some volatility to create another obligation.
Thursday’s opening setup.
The cash session open is one hour after the Employment report, so its reaction could cause the open to gap one direction or the other. In either case at this stage of the pattern, it is a gap that will want to be filled. Trending might already be underway ahead of the Employment report in the wake of this morning’s 7:45 ECB rate announcement, whose effects the report might exacerbate or reverse. And one more report is due at 10:00 just to keep us guessing.
The environment couldn’t be more fluid, given the 3-day holiday weekend, shortened session, unusual timing for today’s report, and sitting at the lows after having retraced all of a substantial recovery attempt. I can’t imagine there not being a probe of new lows, whether or not sustained, but this half-session could be more volatile than some weeks.[/pay]