Trading Plan for 8/12
[pay]About that close (How the prior session ended)
Wednesday’s last hour remained under pressure, probing lower lows. The 3:10-3:20 window’s bounce above prior lows was rejected when the window closed. Any bounce’s purpose would be to refuel sellers. A bounce was attempted, though not required, and it was pretty shallow. It resolved in new session lows into the close.
Pattern points (And technical influences)
Wednesday closed under Friday’s 1103.75 prior relative low to signal a trend change. Monday’s interim new high close was the first to be rejected so forcefully. Similar setups have identified this rally’s prior turning points.
Signaling a trend change is step one. Step two is not invalidating it by closing back above the prior relative low. Notice that I don’t refer to “confirmation,” which is associated with a breakout, meaning that the second session should extend the first’s. A trend change need not extend any lower, and must simply close for a second consecutive session under the same level that signaled the trend change.
The July 23-29 prior lows around 1084.50 were barely touched at Wednesday’s futures close. That’s about 36 handles under Tuesday’s closes. A lot of selling pressure was expended just to get back to prior lows, not including a spike down to 1073.25 after the close. Recovering into positive territory at Thursday’s open – after the Jobless Claims report has been absorbed – would rob sellers of their near-term traction.
Invalidating Wednesday’s trend change by closing above last Friday’s 1103.75 low could produce a substantial rally leg. Otherwise, any pause in the decline would be just that, a pause. The trend remains down, and next targeting the 1065.00-1068.00 area.
Bottom line (My underlying premise)
Overnight action can offer clues of what to expect at Thursday’s open. Global markets are sure to react in sympathy to Wednesday’s S&P losses. The question is whether S&Ps extend down, as well. Firming would suggest that sellers might be getting ahead of themselves. That is, firming enough. The extra post-close dip to 1073.25 creates a lot of room to absorb an overnight bounce. It also puts 1065.00-1068.00 into “spitting distance” (please don’t try that at home).[/pay]
Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.