Trading Plan for 8/12

[pay]Pattern notes.
Tuesday afternoon’s price action mostly bounced. It bounced almost as high as was allowable for a correction, although it lasted a little longer than it should have. But a last-minute dive still had time to reach significant levels, coming within 1 point of session lows at 990’00 (highlighted yellow).

The dive’s 991’00 low did probe 61.8% into the consolidation at session lows. That’s deep enough to satisfy selling pressure, so that a bigger bounce could begin on Wednesday. It’s also deep enough that trading any lower Wednesday would signal Tuesday’s last-minute dive was extending.

Lower lows would put into play the next objective  (also highlighted yellow) at 981’00. Had the decline resumed Tuesday afternoon instead of bouncing, its excess pessimism could have bottomed near-term around 984’00. Now, the best chance for bottoming would be a gap down to the 981’00 area, expending more selling energy than created.

The 981’00 area probably won’t break easily if tested. It was the rally last extended target prior to 1015’00, and both were fulfilled, so a close under 981’00 would signal a massive trend reversal underway. After more than a week of continually higher intraday highs without buyers gaining traction, Tuesday’s range touched some part of all those prior sessions. A credible rally can’t begin from the current pattern, a pattern that is much more likely to produce a durable decline.

Indicators and Internals.
All of Tuesday’s overbought and oversold conditions were retested intraday. There were no divergences left unfulfilled. The morning’s three consecutive ignored positive divergences did produce lower lows, albeit not substantially lower lows as was the potential. Nonetheless, there is no unfinished technical situation requiring a move in either direction.

Wednesday’s opportunities.
The morning’s econ reports aren’t very influential. The 10-year auction at 1:00 is vulnerable to a surprise. A reaction in either way probably wouldn’t get very far, not while the market is otherwise paralyzed by anxiousness ahead of the 2:15 FOMC announcement. Any trending prior to noon should begin before the open, and extend beyond a relevant level if it’s going to avoid being retraced into the close. [/pay]