Trading Plan for 8/25
[pay]Pattern notes.
Like any breakout, Friday’s breakout above 1015’00 required confirmation the following day by closing above Friday’s 1027’00 high. Like any breakout attempted on expiration day, confirmation wasn’t expected. That clue warned us to be skeptical of a retest of the 1032’50 overnight high. More so, expecting a close under 1027’00 made shorting the overnight high’s retest extra compelling.
Monday’s close under Friday’s 1027’00 high did fail to confirm Friday’s breakout. This doesn’t mean Tuesday can’t attempt to trend higher again, especially since Monday afternoon’s dive didn’t damage the rally’s chart. The morning’s extension up to 1035’00 created extra room to absorb the selling. In fact, the afternoon’s dive held a test of its 1021’50 bias-down target. Any lower would have probed Friday afternoon’s lows, where sellers might have gained tractioned.
Extending higher Tuesday would likely match Friday’s gains. This would fulfill the 1043’00 target – without a confirmed breakout having put it into play – very satisfying intraday, but an accident waiting to happen. Ranging narrowly around Monday’s close isn’t likely, so not rallying Tuesday would be mean sellers were making another push effort. Retracing back down to Friday’s 1013’75 opening gap would be difficult to recover. This pattern could turn either way Tuesday, regardless of Monday’s dip.
Indicators and Internals.
Oversold RSIs at Monday’s 1026’50 pre-open low told us to expect its retest. Retesting it early enough could have been accompanied by a positive divergence worth buying. But its test came after neutralizing an attraction to higher prices. RSIs diverged positively at the retest of Monday afternoon’s 1021’50 bias-down target. The reaction never recovered a prior high with resistance up to 1026’50-1027’50. Its recovery Tuesday would target at least a probe of Monday’s highs, potentially extending up to 1043’00.
Tuesday’s opportunities.
Gapping either way from Monday’s close in this pattern would leave a gap likely to be filled, likely to inhibit trending away from it for very long. But gapping either up above 1027’50 or below 1020’50 would be likely to trend 5-6 points in that direction first. Tuesday’s econ calendar is unusually plentiful, unusually staggered, and at one point unusually dense. Econ reports have been helpful to the rally lately – Monday’s decline had no reports. The overwhelming news flow might be difficult to trigger a lasting reaction.[/pay]