Trading Plan for 8/31

[pay]Pattern notes.
It is already difficult to attract sponsorship on Fridays. With two days of illiquidity just hours away, fewer participants want to participate, let alone start a trend. The week-long trading range only made this more difficult. So, despite trending up overnight to probe the week’s prior highs, the test held.

The overnight trending’s timing also revealed that strong players weren’t sponsoring it. So, not only was it unlikely to launch a breakout, but it was likely to trap buyers in the process. Buyers that would scramble for the exits as the weekend continued drawing nearer.

The morning’s drop was stopped by this same principle. A lot of ground was covered in a short time 17 points off the high at 12:30. In the same way that bulls were excessively optimistic trying to break a range Friday morning, bears would have been excessively pessimistic to drive price lower Friday afternoon.

Friday’s non-sellers revealed their own strength by not taking the bait. They didn’t gain any traction from closing back at the range’s middle. But neither did they extend themselves inappropriately. And there was no evidence of short-covering to suggest impatient selling even had any influence. A breakout attempt is still possible, and it would be credible, but nothing is attracting price higher otherwise.

The bigger picture.
The week-long trading range doesn’t change things, except that an entire week has elapsed at new highs without changing things. And that changes things.

A fresh high has gone stale instead of either exploiting it by extending higher, or refueling it with a dip. Thursday’s dip was too late, too shallow, and too brief to qualify. This is not the stuff of a bull market under accumulation, but of a correction reacting. The rally’s definition as being a correction remains unchanged, and its ultimate resolution remains back down to the lows.

What has changed is the timing. The fresh high went stale in what has become an extended sideways range. This has created mass, and that mass has a gravity. Attempts to trend away from this range will be attracted back to it. Gapping open beyond the mass would have better chances of survival, but not gapping within the mass.

This can’t come at a better time than this week. Seasonal bullishness that often accompanies a three-day holiday weekend. Gapping Monday or Tuesday might be able to extend before the fast-approaching illiquidity dissuades sponsorship for trending. A weak decline to as low as 981’00 this week could launch a bounce next week back into the mass. A more forceful decline would still have room down to 981’00 before signaling the trend has reversed down.

Indicators and Internals.
RSIs weren’t overbought at Friday’s pre-open high, which was an amazing disconnect from price action, considering the price action was behaving very optimistically. RSIs were oversold at the noon hour low, timing that makes its retest likely but not required. Otherwise, the only unfinished technical retests are below the market from prior sessions.

Monday’s opportunities.
There’s no unfinished business above, nothing mandatory. Friday’s opening gap was under the prior high being retested. And the gap was retested anyway after touching the prior high. Still, it’s going to attract price higher if buyers get any traction at Monday morning above 1030’50. Any early modest selling pressure probably won’t gain traction either. A morning sell-off depends mostly upon breaking early under 1023’00 and extending lower without delay. The econ report scheduled at 9:45 is unusual timing, so any initial trending will have to stand the test of time to be credible.[/pay]