Trading Plan for 8/18

[pay]Pattern notes.
Much can be learned from even the narrowest ranging session, when that session isn’t unusually influenced. Friday’s session was influenced by monthly expiration. We know this because the open’s volatility wasn’t productive and because there was no productivity through the close. In other words, despite gapping up and following-through, the open’s probe of prior highs was rejected. And intraday ranging held retests of the prior high and prior relevant low.

Take out the extraordinary influence and the session would be considered “ineffectually optimistic.” Regardless, I would be suspicious of any early rally until it recovered above the gap back to last Monday’s ~1305’50 close. It could be probed by 2 points before beginning to assume that buyers were gaining traction. But a close above 1311’00 would be the minimum requirement to confirm.

A drop begun from either of these levels would still have potential for recovering, and for resuming the rally from two-week old lows. That potential would be better used Monday afternoon, or Tuesday, since it is unusual for expiration-day ranges to break immediately. That’s why an early rally would be suspicious. Similarly, although an early dip to 1287’00 could still recover easily, but an afternoon dip would be more credible.

Indicators and Internals.
MACD & RSI nearly flat-lined Friday from the lack of volatility, and won’t be very useful until the second attempt to probe Friday’s range. Internal spreads reflected much more effort by buyers than was rewarded by the ineffectual optimism. That certainly isn’t accumulative, but its relevance is undermined by the expiration-day influences.

Monday’s opening setup.
The question to ask of trending attempted Sunday night and Monday morning is whether it is capable of extending. Probably not, as described above. But I suspect trending will be attempted, nonetheless. I can’t yet rule out filling the gap back to last Monday’s higher close, but I would expect it to push S&Ps back down if tested before any sell-off were attempted.[/pay]