Trading Plan for 8/1

[pay]Pattern notes.
What a difference an hour makes. Until then, S&Ps had retraced the open’s gap down, and then held a retest of the morning’s low. Most of that second drop was recovered – at least the relevant part, a couple of points above the ESu 1281’00 bias signal (the morning’s bias-down and the afternoon’s bias-up). Whether or not directly related to Greenspan’s CNBC appearance, S&Ps slid nearly 18 points to 1265’00.

The session’s ineffectual pessimism should have helped to absorb Friday’s Employment report, but pessimism became effective, sliding more than 6 points under the morning’s low. The drop stopped optimistically short of touching Wednesday’s lows just 1 point lower, reason to doubt an immediate rally from Thursday’s close.

An immediate drop wouldn’t be much more credible, more likely to bounce from the 1260’00-1263’00 area instead of breaking under it. Falling back from testing 1272’50 – or just gapping under 1260’00 – would be credible for extending down another 7 points, targeting the week’s 1231’50 low and lower. Gapping up above 1272’50 would help to reject Thursday’s late drop, so it might be bullish, and I would comment on that at the time.

Indicators and Internals.
Oversold 3-minute RSI at Thursday’s last-minute low makes a recovery unlikely – at least, unlikely until retesting Thursday’s last-minute low. The spread between NYSE down volume and up volume far outpaced the spread between declining and advancing issues, thanks to the last hour’s drop suddenness. Regardless of its cause, this does increase the potential for a bounce, no matter how temporary.

Friday’s opening setup.
The Employment report isn’t this week’s last econ report. Two more are due at 10:00, 30 minutes after the open, timing that tends often either to accelerate or reverse any initial trending underway. That could make the bias signal a last-minute affair. This being a Friday, the morning’s bias signal is likely to persist past the noon hour. And this being an Employment Situation report, I’ll update parameters before the news, or earlier as needed.[/pay]