Trading Plan for 8/21

[pay]Pattern notes.
Sellers dominated Wednesday’s open by driving S&Ps down sharply to probe Tuesday’s lows. A rally recovered the entire drop from overnight highs, but the gains were returned back to Tuesday’s lows. Another rally recovered back to overnight highs in time for the close.

Did sellers miss their chance to produce a new downleg targeting ESu 1255’00, 1248’00 and lower? An unchanged close Wednesday would have suggested as much, sucking in buyers to fill the void left by sellers unable to exploit Tuesday’s bearish session. But Instead Wednesday’s late rally filled the void with a short-squeeze that peaked just far enough to avoid buyers gaining traction.

Wednesday’s last upleg bought sellers some time. But they’ll need to be obviously in control at Thursday’s open by rejecting the last upleg. A drop back to its ~1266’00 origin should soon fall another 10-15 points to leave no doubt, and to attract no buyer. Otherwise, gapping above 1275’00 would target 1280’00-1283’00, an inflection point equally vulnerable to rallying sharply as to plummeting.

Indicators and Internals.
MACD & RSI avoided any overbought or oversold reading after the open’s lows. That is part of the reason why I’m not considering Wednesday’s wide range to have been accumulative. Initial overnight readings aren’t as bashful. Internal spreads showed buyers expending more effort than sellers, but for relatively less reward. Unlike most recent sessions volume increased, obligating Thursday’s market to reward Wednesday’s sellers for their relative productivity.

Thursday’s opening setup.
The econ calendar offers several potential curve balls. Jobless Claims before the open is followed by two 10:00 reports – LEI and the Philly Fed survey – timing that tends to reverse or accelerate any initial trending. If the open either rejects Wednesday’s last-minute rally or extends it, the econ reports should catalyze a substantial reaction.[/pay]