Trading Plan for 8/13

[pay]Pattern notes.
Monday morning’s rally was built on sand because it originated during a No-bias environment. That required retracing it back to its ESu 1296’00 origin. Two dips stopped optimistically short at 1298’00 Monday afternoon and again overnight, making a deeper probe likely. It took awhile, but S&Ps eventually reached 1285’25 then bounced nearly 7 points into the close.

Tuesday’s low held a critical test that would have pointed sharply lower without delay had 1287’00 not been recovered. The recovery stopped short of signaling that sellers had lost traction. They’ll start losing it if they don’t start using it Wednesday morning.

Sellers’ first reward would be an air pocket down to the 1277’00 area, then another 10 points lower, and last Monday’s close under 1250’00. There is room for an interim bounce up to the 1297’00 area without buyers gaining traction in their place. Above 1298’00 or so could retest Monday’s highs up to 1311’00-1313’00.

Indicators and Internals.
Sellers worked harder than buyers Tuesday and were rewarded less, which tends to obligate the following session to reward buyers for their relative productivity. But Tuesday’s volume slowed its recent pace, which tends to soften that obligation.

Wednesday’s opening setup.
The close back at the past two months’ prior highs is threatening to invalidate Monday’s higher high officially – not just in theory as the morning’s ill-timed breakout did. It’s a critical point in the chart, so any delay in reversing the breakout attempt is going to help the breakout to recover and extend higher. Conversely, the earlier taht sellers can gain control, the more likely they will control the entire session.[/pay]