Trading Plan for 8/22

[pay]Pattern notes.
Thursday’s session was almost an inside day until its last 90 minutes. And 60 minutes of that was spent retracing all the first 30 minutes’ gain. Did sellers absorb buyers, or did buyers chip away at resistance? Internals (discussed below) suggest the former, but so does the close back under Wednesday’s high. This was after filling an outstanding gap at higher levels, neutralizing any magnetic attraction to rising prices that it might have had.

None of which is a sell signal. Tuesday’s gap down to new lows, Wednesday’s two failed intraday rallies, Thursday morning’s failed bounce… Nature abhors a vacuum, and that’s what remains when sellers repeatedly push S&Ps back down to support, but don’t convert that into a break to new lows. Buyers could be sucked into the void left open by sellers not exploiting these vulnerabilities without further delay.

Indicators and Internals.
NYSE up volume was 5% greater than down volume Thursday, but declining issues outnumbered advancers by 30%. This is a negative divergence that obligates the following session to reward sellers for their relative productivity. S&Ps probed positive territory for only a small portion of the day, and total volume declined, so the internals aren’t very predictive in this instance. But the internals certainly don’t reflect accumulation. This means the afternoon’s probe above Tuesday and Wednesday’s highs was absorbed by sellers, and didn’t chip away at resistance.
Friday’s opening setup.
No econ reports are due. This being a Friday, the morning’s bias is likely to persist past the noon hour. If the session intends to rally, then it should begin by gapping up above Thursday’s 1282’00 high. Regardless, I would be a little skittish shorting opening strength at any level that hasn’t yet retraced under a pullback limit. But I would be ready since buyers have failed all other opportunities this week. Failing one more surge at Friday’s open could end the week with sellers compensating well for lost time.[/pay]