Trading Plan for 8/21

[pay]Pattern notes.
Thursday morning’s rally filled the gap back to last Friday’s 1003’00 cash session close. The last hour’s brief break higher filled the gap back to Friday’s 1006’50 futures close. That’s a wide margin between a single session’s two gaps, but filling one made the other likely to be filled, too.

Had the second test been left outstanding, it could have been relied upon to attract price higher Friday. But it held as resistance on a closing basis. Closing back under Friday’s lower close would have ended the bounce. Not that the close avoided this by a wide margin, but the potential to extend higher remains alive.

Thursday morning’s rally expended buying energy, and Friday’s gap didn’t trigger a pullback. Buyers made the entire session develop in positive territory – let alone at new bounce highs. Yet, the close barely exceeded the morning’s peak. The afternoon’s buyers were productive only in preventing a drop.

Any durable follow-through Friday will need to begin by surging or gapping up sharply. Otherwise, sellers will find an extended bounce whose sponsorship has evaporated. Perhaps expiration can skew price action to avoid any retracement, or to extend the bounce for a retest of 1015’00. But there isn’t much support under 1001’00-1002’00 to prevent a drop back to Wednesday’s late-morning 986’00-988’00 highs.

Indicators and Internals.
Thursday’s tests of last Friday’s closes could have been avoided altogether. Had the overnight reaction down from 1003’00 through 998’00 continued through 995’00 support, then a session-long decline would have been likely. But MACD & RSI diverged positively there. Overbought RSIs at the morning’s high prevented sellers from gaining traction. That was neutralized by new session highs, where 1-minute MACD & RSI diverged negatively, leaving no unfinished business above.

Friday’s opportunities.
A 10:00 econ report on expiration day isn’t just rare, but very unusual. Unusual influences tend to be very influential, so any initial trending should be view skeptically. But this being a Friday, the morning’s bias environment is likely to persist past the noon hour. [/pay]