Trading Plan for 8/20

[pay]Pattern notes.
Into and out of Tuesday’s last hour, S&Ps bounced wildly off of each attack on session lows around the ESu 1264’00 level. First to within 1 tick of 1268’00 before falling 5 points to a new session low, then more than 1 point above 1268’00 before falling 5 points back to 1264’00. But timing was more relevant than price action, and none of the dips extended down before the 3:30.

Through all of the false starts by sellers, no buy signal triggered. Indeed, no buy parameters ever formed. Even gapping above Tuesday afternoon’s ~1272’00 high would be considered a corrective bounce with potential another 5-6 points higher, but otherwise vulnerable to resuming the decline. Nevertheless, its more likely resumption would be to repeat Tuesday’s gap down, compensating for the obvious selling pressure that wasn’t produced into Wednesday’s close.

S&Ps firmed into the cash session close and the Globex open, so a gap above the afternoon’s high could still be easily reversed. More significant is that the late strength expended buying energy during an irrelevant timing window when it couldn’t build a base capable of launching durable follow-through. And that buying pressure might be sorely missed soon enough.

Indicators and Internals.
The market was lower at Tuesday’s close, although no lower than it was already by noon. Internal spreads were understandably negative, although 3-1/2 times more NYSE down volume than up volume produced less than 3 times more declining issues than advancers. The ratio doesn’t confirm or invalidate the price action, but it is isn’t out of line enough to obligate a bounce. MACD & RSI were similarly non-committal, with RSI not touching overbought or oversold through the cash session. Trending is unlikely to begin otherwise.
Wednesday’s opening setup.
Wednesday’s econ calendar is sparse. There won’t really be any major economic recalibration to keep price action lively Wednesday morning. Instead early trending would be credible for extending through the morning. Similarly, narrow ranging won’t have much reason to break either way. Whether or not an overnight bounce were to attack or test the 1271’00 area, Wednesday’s open remains vulnerable to delivering the obvious selling effort that was threatened Tuesday. Not delivering it would more likely extend the ranging, and less likely recover. [/pay]