Trading Plan for 7/8

[pay]Pattern notes.
The last hour’s ESu 1253’50 bounce target didn’t hold back the rally for long. One more upleg took the more obvious form of a short-squeeze. But the 24-point rally off of session lows stopped 1 tick short of filling the gap back to Thursday’s last close, where a 13-point drop ended the day.

The recovery failed to close above the decline’s 1263’00-1265’00 prior lows that would have formed a “Gotcha!” setup. A close 10 points higher above  the morning’s high would have formed a Pivot reversal. Either buyers left something on the table to attract price higher overnight and tomorrow, i.e. the “crazy like a fox” setup, or else they missed the chance to avoid another downleg well under 1244’00-1247’00, i.e. the just plain crazy setup.

Indicators and Internals.
Overbought 3-min RSI accompanied the afternoon bounce’s high at 1265’00, so its retest is required. S&Ps have already pulled back 13 points, so RSI is likely to diverge negatively if 1265’00 were retested. Internal spreads were evenly distributed, so the market doesn’t owe either buyers or sellers for any relative productivity Monday.

Monday’s opening setup.
I think it would be a silly waste of energy to try shorting Tuesday’s market if Crude Oil follows through on Monday’s threat to break lower. In that instance I would rather focus on lightening long positions into valid resistance levels, and then loading up on pullbacks to appropriate levels. By the same token, not repeating the recovery attempt would add injury to the insult of Monday’s failed Gotcha setup, at perhaps the most vulnerable point in the charts for a substantial new downleg to begin.[/pay]