Trading Plan for 7/6

[pay]Pattern notes.
Third times aren’t always so charming when it comes to trending attempts. Not that June’s first two bounces were very pretty. But last week’s rejection of June’s third bounce could get very ugly very soon.

Two consecutive bounces had resolved in lower lows, dropping under their own origins. Now the third consecutive bounce is on-track for doing the same. And it’s not as if the failures weren’t justified; the character of each bounce’s origin was noted for attracting only temporary buyers, even before their bounces began. The latest bounce originated with similar characteristics. Thursday’s break lower seems to be proving out the warnings seen in the prior two sessions’ highs.

June’s dashed trendlines identify each of the three bounces – each of their origins, and each of their failures. The highest pullback bounced off of May’s highs. Its eventual break bounced upon retracing May’s two last false breakouts, then fell to the origin of May’s last upleg. This most recent bounce almost gained traction retesting the prior bounce’s peak, entering the weekend with a new break underway.

May’s dashed trendlines identify the Descending Triangle whose break higher was predestined to fail, before reversing down more substantially in the opposite direction. The most recent bounce began optimistically short of actually touching the Triangle’s lows. The bounce formed prematurely, but delayed its peak. Buyers were too impatient at the latest bounce’s low, and now seem to have been too patient at its high.

Thursday’s volume wasn’t exactly breakout quality, although it was relatively strong for pre-holiday weekend trading. Regardless, this pattern doesn’t require significant volume expansion until breaking under its 888’00 two-week old low close. Thursday’s cash session stopped several points higher, optimistically, and even a post-close dive stopped 1 point short of even touching this objective. Globex trading into Friday morning bounced, but still ended unchanged from Thursday’s close, hardly rejecting or repairing its damage.

Indicators and Internals.
Both 1-minute and 3-minute RSIs entered a narrow range at noon, and remained in neutral territory until the last hour’s sudden dive. Two-three positive divergences had already been ignored, so lower lows remained likely. But starting from a standing stop doesn’t tend to persist. The break did correct itself with a bounce back to the range’s “higher prior lows.” Friday’s bounce held a similar test, but has yet to resolve in a lower low. This remains likely since RSIs were oversold simultaneously at Friday’s close.

Monday’s opportunities.
For all of its hesitation at Thursday’s cash session and post-close low (and Friday’s Globex lows), there isn’t much more support before touching May’s ~875’00-876’00 prior lows. For all the hesitation to avoid extending down and actually touching May’s prior lows, there is actually a higher likelihood of gapping down through prior lows and extending down sharply intraday. This risk can be allayed considerably by recovering 898’00, which could trigger a bounce initially targeting 909’50.

The next lower obligatory support is around 866’00, but a lot of selling pressure would be satisfied upon testing 851’00. It’s pretty scary how little support there lies any lower before 720’00-730’00 (6950-7035 basis the Dow). Such a move would require massive disappointment. This week’s massive Treasury auctions are one opportunity. G-8 focus on replacing the $USD is another. But the failure of June’s third consecutive bounce effort is reason enough.

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