Trading Plan for 7/31

[pay]Pattern notes.
Thursday afternoon’s pattern could have escaped trending beyond 988’00-992’50. The noon hour’s range was only 2-3 points, the 2-3 points added after the Treasury’s auction were eventually retraced. But sellers hit the last half-hour hard, anyway.

Three consecutive “ineffectual pessimism” sessions had already told us buyers were tired, but sellers wanted higher prices before attacking. We already knew before 10:30 that the morning’s rally had lost momentum, and that any higher high would be only the prior high’s retest. Buyers needed to refuel, first, or else a later pullback would make the “afternoon could look entirely different than this morning’s surge.” Finally, the shallow pullback made the rally’s resumption unlikely.

That’s all neat to know, but it’s all neutralized. Although the post-open upleg was retraced to its origin, sellers didn’t gain traction just because buyers didn’t. It certainly doesn’t speak well of buyers to have retraced all post-open gains. But the next 8-9 points could be up or down without answering which direction the bigger move will take.

Thursday’s breakout close needs a second consecutive higher close to confirm. Whether likely or not, it’s difficult, but still possible. That’s just a pattern’s analysis. As for the 981’00 signal, having been the rally’s most recent target, closing above it means the next higher target at 1015’00 is in-play. Thursday’s close barely held 981’00, and it was soon tested after the close. A close back under 981’00 Friday would invalidate Thursday’s signal, but wouldn’t be a sell signal, or prevent another try.

Indicators and Internals.
1-minute RSI diverged positively into Thursday’s close. It came a little late to be reliable, and the 3-minute didn’t confirm at all. At least RSIs weren’t simultaneously oversold to doom any bounce to failure, as they doomed the pre-close bounce that failed. But there are no outstanding signals from the day.

Friday’s opportunities.
Gapping down would form an Island of Thursday’s session, likely to be retested sooner rather than later. Sliding down instead would still be likely to retest Thursday’s range on a bounce. Filling the gap back to Wednesday’s ~974’00 close would likely include a test of 971’00.

Bouncing first overnight or Friday would target Wednesday’s intraday ” higher prior lows” at 989’25-990’50. The rally could then resume, or else a bigger drop could get underway. Gapping up above Thursday afternoon’s 992’25 highs would be likely to trend higher throughout the day. Session-long rallies on Fridays tend to bleed into the following week.

It seems like the GDP has already been leaked to some degree, or at least won’t be much of a surprise. The PMI comes 15 minutes after the open, and could be much more influential. Regardless, this being a Friday, the morning’s bias environment is likely to extend past the noon hour.[/pay]