Trading Plan for 8/19

[pay]Pattern notes.
Monday’s late probes of new lows each recovered back above bounce limits to signal that sellers were losing traction. But the interim bounces each stopped short of signaling that buyers were gaining traction. If sellers have chipped away successfully at 1275’00 lows, then Tuesday’s open should gap under them and extend lower.

The alternative is that the consolidation at Monday’s lows was actually accumulative. After all, the third lower low was recovered back to the two prior bounce highs. But a recovery back above the bounce highs would have made the difference between optimism and bullishness. Instead the last bounce didn’t extend higher until after the cash session close. The afternoon’s 1280’25 bias-down target was recovered in the process, but not until it didn’t much matter.

I will give buyers a benefit of the doubt if Tuesday’s open is somehow exploiting Monday’s post-close gain – perhaps for a bounce up as high as 1291’00. Otherwise, back under 1277’00-1278’00 would target 1267’00, for starters. And if maintained on a closing basis, the loss would confirm that the interim rally from last Wednesday’s lows was all about option expiration mechanics, that they had been absorbed, and that the decline was resuming.

Indicators and Internals.
NYSE down volume wasn’t quite 5 times more than up volume, but declining issues numbered only 2-1/2 times advancers. Total volume was below its average pace, muting the obligation to reward Monday’s buyers for their relative productivity. While 3-minute MACD & RSI diverged positively at Monday’s last probe of new session lows, the 8-point rally it produced saw 1-minute technicals deteriorate and refuse to confirm. If Monday’s last-minute bounce does extend higher Tuesday, then it would probably be momentary.

Tuesday’s opening setup.
A higher high up to the 1284’00 bias-up signal would likely repeat the template for Sunday night, but for different reasons. The morning’s price action isn’t precluded from trending as it was Monday, but Monday’s last-minute bounce suggests a lot of buying energy was expended. Any higher would of course trigger the bias-up signal, so sellers must let get control as early as possible to expect having it later, too.[/pay]