Trading Plan for 8/26
[pay]Pattern notes.
Thursday’s last action was to dip back to Tuesday and Wednesday’s highs, retracing the afternoon’s gain. While that’s not enough to force immediately lower prices, it does undermine any rally attempt. The buyers that produced Friday’s gap up discovered this problem Monday, although they probably don’t know exactly what went wrong. The day’s news wasn’t really anything new, it just met the market after rallying off an unstable base.
There is a similar lesson in Monday afternoon’s reversal back into the range after S&Ps tried breaking to a new extreme. Thursday’s break was a rally attempt, but the important difference is the timing of each. Monday’s break started during an irrelevant timing window after 3:30. Recovering from an irrelevant break is also irrelevant. Thursday’s higher highs first printed during a relevant window, so its failure was also relevant. So relevant that it doomed Friday’s gains to failure. But a break lower Tuesday would not be so encumbered.
After probing above Tuesday and Wednesday’s highs, any drop was going to target a 61.8% retracement back into their range. That was 1267’25 and it was influential Monday afternoon. It might be influential again after an early break to 1260’00-1262’00 Tuesday, whether or not recovered. But if Tuesday’s open is firm or higher, then the sell-off will be difficult to resume from above 1267’25, but easier from below.
Indicators and Internals.
NYSE down volume was 4.6 times greater than up volume, but produced only 3.6 times more declining issues than advancers. Had total volume increased to an above average pace, then Tuesday’s session would have been obligated to reward Monday’s buyers for their relative productivity. Instead volume was relatively light, which makes some sort of lower low likely.
Tuesday’s opening setup.
FOMC minutes will be released at 2:00 Tuesday. It’s not quite the gravity of an FOMC decision or Beige Book (next week) but it induces volatility nonetheless. Early trending might have difficulty getting too far if it doesn’t get far early enough, before price action becomes all but paralyzed by anxiousness ahead of the news.[/pay]