Trading Plan for 7/9
[pay]Pattern notes.
Wednesday afternoon’s short-squeeze lived up to its name, mostly the “short” part. Sellers had lost traction when the mid-afternoon retest of the noon hour’s low down to 865’25 was quickly rejected. The squeeze took its time, but finally touched 879’00.
A drop through the close reached 873’00, which is basically Wednesday afternoon’s “lower prior highs.” It was also the last relative high prior to the noon hour’s tumble. The 873’00 area would have likely held as support if attacked from above Thursday morning. It’s not in that position anymore, since that’s where Wednesday closed. Opening weakness Thursday would not need to negotiate 873’00 because sellers would be starting there.
Price did firm 3 points after the close on favorable earnings from Alcoa (AA). The stock gained 5%. Wednesday’s short-squeeze neutralized a lot of selling pressure, but the last-minute dip also neutralized the squeeze’s overbought condition.
The 866’00 area was the maximum potential downside target of signals triggered last Thursday. It was achieved by slicing through May’s prior lows, making those prior lows likely to be tested as resistance well into the 870‘s. Wednesday afternoon’s bounce did that, and the session still closed negative and under the prior session’s lows. Only a gap up can turn momentum higher from this stage of the pattern, and then only temporarily.
Indicators and Internals.
RSIs were overbought simultaneously at the 879’00 peak of Wednesday afternoon’s short-squeeze. It was already the session’s last 15 minutes, undermining the signal’s relevance. But I would still expect the high’s retest Thursday morning if sellers aren’t obviously in control at the open.
Thursday’s opportunities.
Maybe the decline is so vulnerable to a rally that a bounce’s catalyst could simply be not extending down overnight. Back above 881’00-883’00 would be likely to extend higher intraday, but otherwise act to resist any strength. Any weakness at Thursday’s open isn’t likely to be only slight, anda break under 866’50-868’50 could trend down sharply through the day. [/pay]