Trading Plan for 8/27
[pay]Pattern notes.
Two econ reports are due before Thursday’s open. Normally, I would address this below. But a pattern has formed that may be instructive. The last three high-profile reports instantly triggered buying, and that optimism has been retraced entirely.
The first two instances were retraced almost immediately – Wednesday’s 10:00 New Home Sales was likely either to extend its initial gain, or else its instant reaction was likely to be down. The reaction was up, and then up further. Its ultimate retracement wasn’t due to factors that developed later.
Now the pattern has become even more limited. The initial reaction either way to surprising news is likely to extend more substantially, in terms both of price and of time. A surge would likely gain traction, last the day, and threaten the week’s prior highs. A break lower is likelier, and it would be likely to trend down sharply, potentially for days.
Gapping open has also become much likelier due to this week’s three consecutive days of ranging around Friday’s landmarks. Its 1025’50 and 1027’00 high have been probed much higher without buyers gaining traction. Probes lower have also retraced. As discussed here yesterday, this is distribution and it predicts a downleg soon, even if a detour to 1043’00 were inserted.
Indicators and Internals.
Technicals left no new business unfinished. But it was interesting that intraday reversals signaled by 1-minute RSI were not signaled by 3-minute RSI. Apart from a simultaneous negative divergence at the morning’s high, the 3-min never probed either overbought or oversold territory. Not surprising for yet a fourth consecutive session closing at 1025’50-1027’00, but still interesting to know there’s nothing hidden beneath the surface.
Thursday’s opportunities.
The day’s econ calendar is interesting, especially Jobless Claims. Treasury is auctioning 7-year notes, and recently shorter-terms have gone off fine. This doesn’t make longer-term paper more or less likely to get done without a hitch. But it does gradually reduce the market’s jitters, and that does make any hiccup likelier to have an effect. Extra care and attention is warranted if trading around this items. [/pay]