Trading Plan for 7/7

[pay]Pattern notes.
Sunday night’s slide left lows that required a retest intraday. And they were retested intraday, at the 882’00 mid-morning low. It was no surprise that this leg of the retest wasn’t going to extend lower, since technicals had improved into the new low. It wasn’t really that surprising for the retest not to extend lower intraday at all.

Monday’s last-minute 7-point surge to 894’25 was somewhat surprising. But that’s more a testament to its timing than to its sponsorship. A dip into the last half-hour had stopped at 887’25 where any lower would have extended the morning’s low. Sellers opened a door without going through it, so the market sucked in buyers to fill the void. The distinction is important: Monday’s last-minute surge was not from buyers pushing higher, but from sellers getting squeezed. To underscore this message, the squeeze added 2 more points after the cash session close.

Sellers hadn’t lost any traction until then, but neither had they gained new traction. Buyers had an opportunity to form “ineffectual pessimism” – gapping down to new lows, trading exclusively in negative territory and under prior lows, yet closing above the morning’s lows. The setup isn’t a buy signal, but it tends to precede a gap up. Monday’s last-minute surge neutralized the pessimism, rendering the setup moot.

So, Monday’s sellers chipped away throughout the day at two-week old prior lows. The last-minute surge peaked at the resistance of Thursday’s “higher prior lows.” Delaying the squeeze until so late has limited its potential follow-through to 902’00, but any higher would target 911’00. Meanwhile, immediately unwinding the last-minute squeeze would simply resume the decline, both with a vengeance, and also with not much support before reaching 866’00.
Indicators and Internals.
Technicals underperformed at Monday’s last relative high, just before a 4-1/2 point drop that preceded the last-minute short-squeeze. Technicals improved on the squeeze, but still underperformed, underscoring that the squeeze was just that and not the beginning of another drawn out recovery attempt.

Tuesday’s opportunities.
Retail sales data starts out the day, with two econ reports comprising the session’s econ reports. If sellers try retaking control by gapping down, they would likely fail without breaking the 888’00 area, and probably succeed if also managing to take out 885’00. Pullbacks otherwise have room down to 889’50-892’00 without disrupting the squeeze’s potential for extending up a little further.[/pay]