Trading Plan for 7/30

[pay]Pattern notes.
The more things change… Wednesday was a rare third consecutive “ineffectual pessimism” day – gapping down, trading exclusively in negative territory, while sellers fail to exploit an opportunity to gain traction. But wait, there’s more…

Once again, the session ended with a surge back to or through the day’s highs. This recent tradition actually started Friday. Each of the “ineffectual pessimism” sessions have rejected this by gapping down.

If this sequence were developing at the tail end of an extended decline, it would be very bullish. Most recently we saw this in real-time with the long-bond’s bottom under 113’00, and with Crude’s recent bounce from testing 60’00. This instance, however, is appearing in an uptrend.

It would be outright bearish if it were probing higher highs intraday, inverse from the bond and oil market’s lows. Those trends were sponsored by sellers, so the burden of proof was on them, and their evidence was thin. In the S&Ps rally, the burden of proof is on buyers, so this “ineffectual pessimism” only measures selling pressure.

Despite being ineffectual, sellers can still be productive. But that productivity would likely be limited to testing “lower prior highs” down to 954’50. Sellers probably lack sufficient sponsorship to break any lower. Such a pullback would more likely launch a new upleg targeting 1015.

This week’s “ineffectual pessimism”in an uptrend can also react by attempting to renew the rally. The second chart shows this week’s earlier overnight highs. The first high is the highest, a “new Globex trend extreme” which requires being retested intraday. A downleg could have gotten underway without neutralizing the retest, but only if started earlier this week – now it’s too late, and a premature downleg isn’t likely to get very far. However, fulfilling the Globex trend extreme’s retest first would allow a durable downleg to begin.

Indicators and Internals.
RSIs were simultaneously oversold at Tuesday night’s 964’00 low. It was retested to within almost 1 point Wednesday, inhibiting repeated attempts to rally away from it. That might be close enough for horseshoes, hand grenades and Globex to consider the retest complete. But its test of the 963’50 area did further chip away at support there, as if there were any left to chip away.

Thursday’s opportunities.
Wednesday’s note auction didn’t go off well and it did impact price action for most of the afternoon. The 7-year goes off Thursday, and the same or different results should be influential either way. That’s after getting past Jobless Claims pre-open. Once again, the “ineffectual pessimism” has an opportunity to produce a temporary probe of the week’s overnight highs, where a reversal down would still be likely. Any early rejection of Wednesday’s late rally would be bearish near-term.

Yesterday in this space I defined the past week’s trading range as 968’50-976’50. Wednesday’s late surge extended past the close to probe the range’s upper-end by 2 ticks. Above 978’00-979’00 buyers start gaining traction for a retest of the week’s overnight highs. But opening or sliding under 968’50 would put the detour to 954’50 into play, first. [/pay]