Trading Plan for 8/22
If the FOMC reaction’s rejection were at all patient… then a rally into and out of the weekend with potential to new highs could have gotten underway. The alternative is something altogether different.
Pattern points… (Setups and technicals)[pay]
Wednesday’s FOMC reaction was a 10-point plunge. Rejecting it was likely to retest Tuesday’s highs. And retesting Tuesday’s highs was likely to close above Wednesday morning’s lows, giving buyers traction.
Tuesday’s highs were retested so quickly that another condition was introduced: Slow down! But the recovery extended too high too quickly, and was retraced entirely.
Optimism became the recovery’s worst enemy. It had already undermined the morning’s dip by narrowly preventing it from testing support before bouncing. At least Wednesday afternoon’s rally followed a probe under prior lows. The problem is that a probe under prior lows also followed Wednesday afternoon’s rally.
Optimism also delayed breaking under the hold-short signal. Follow-through extended through the close more than 5 points below the signal. That borrowed from Thursday’s selling pressure instead of leaving it pent-up to resume the drop then. Optimism is no longer a problem — now the problem is pessimism.
And pessimism isn’t a problem for the recovery, but for the decline. Lower prior highs are near enough to attract price down further if Thursday’s open isn’t already recovering. The decline could extend much further Thursday, and even into and out of the weekend. But only if Wednesday’s late pessimism was finally enough to offset all of the session’s earlier ineffectual optimism. And then some.
[/pay]What’s Next… (Outlook and opportunities)[pay]
Overbought RSIs at Wednesday’s 1654.75 high require being retested. Currently that’s 20 points higher. Gapping up above Wednesday afternoon’s 1646.50 bias environment high would put into play the high’s retest. Otherwise, the next lower support is 1632.00, whose break would target 1621.00. [/pay]
Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.