Trading Plan for 8/24

[pay]Pattern notes.
Friday’s five-hour narrow range extended into the last hour. Had the session simply continued ranging sideways, then the potential up to 1027’00-1028’00 would have remained outstanding. It was already in play since pulling back to 1021’00. But the last hour’s surge did touch the target. Had the surge extended higher, then a new target might have been put into play. But the reaction fell back down to close under the morning’s 1025’25 high.

These margins aren’t particularly wide, barely 3 points. Expiration’s influence can reduce their relevance even further. But the fact remains that intraday buying pressure was fulfilled, without buyers gaining new traction. Futures closed 1 tick above the morning’s high, so the target’s test wasn’t rejected altogether. Nonetheless, similar to Friday’s prerequisite for durable follow-through, Monday’s open must surge or gap up sharply.

And speaking of Friday’s similarities, its intraday pattern was identical to Thursday. The nearby chart shows the similarities, from the opening surge, through the five-hour narrow ranging, to the last-hour surge that retraced back to the morning’s high. Adjoining duplicate setups rarely resolve the same as each other. This complicates a gap up Monday, which is needed for durable follow-through.

The bigger picture.
So, So, what’s next if a new rally leg were underway? Recall that the rally’s highest calculable target off of July’s low was 1015’00. Rallying any further would be the beginning of a new rally leg, and not another extended target of July’s rally. So, a new rally leg’s character would be different, steeper.

The newly unique character of the next rally leg, if there is one, could also be brief. Its initial target would be 1043’00 or 1051’00, either of which is near enough to be met within 1-2 days. That could be the next rally leg’s end, or the end could follow two more legs forming over the next two weeks. So long as the legs are steep.

Friday’s opening surge would qualify as steep, but not the narrow ranging through late-afternoon. Still, Friday’s new high close was a breakout attempt, awaiting confirmation from a higher close Monday. Expiration day breakouts aren’t typically confirmed, which simply means higher highs attempted Monday would be likely to fail. A rally attempt Tuesday could still extend higher. A higher close Monday would be very suspicious.

Trends don’t peak on Fridays, either. So a steep sell-off Monday would also be suspicious. A weak decline Monday might be buyable. Closing back under 1015’00 before confirming Friday’s breakout would give 981’00 another chance, and put off further discussion of a new rally leg.

Indicators and Internals.
Overbought RSIs at the morning’s 1025’25 high required its retest. Blog updates repeated this outstanding requirement throughout the day, at the risk of sounding like a broken record. It did sound like a broken record. But that’s the way with most expiration Fridays. The last half-hour surge did retest the morning’s high, and went on to touch the next target area at 1027’00 where RSIs were again simultaneously overbought. A strong gap away from this attraction will be needed to invalidate its required retest.

Monday’s opportunities.
The week begins without any econ reports, which hasn’t accompanied up days recently. Two auctions at 1:00 might inhibit volatility by mid-morning. A new rally leg would be interesting because it would have to be steep, and it could be very short-lived. No new rally leg would also be interesting, because the market once again finds itself on an extended bounce when sponsorhip is evaporating.[/pay]