Trading Plan for 8/4

If Friday’s session had not pierced positive territory… then closing in negative territory might not have been bearish.

Pattern points… (Setups and technicals)[pay]
Candlestick chartists recognize today’s pattern as often appearing at the end of a trend. Gapping down, ranging widely, and yet closing back at the open’s gap. They’re right — but much less so on Fridays. The immobility reflected by the pattern is often jarred loose by gapping in the trend’s direction on Monday.

Many other bearish elements contributed to a hold-short setup. Friday’s intraday retest of the overnight low didn’t react up to a fresh high, so instead of being accumulative, it just chipped away further at support. There’s also the timing of Friday morning’s downleg, coming after the pre-open and post-open rally, which suggests that sellers were strong hands.

Also, although the afternoon didn’t reflect sellers gaining traction, the close was under the morning’s low, which suggests the trend remains down. Closing at new trend lows on a Friday often resolve down Monday. But the extreme sentiment of gapping down after the weekend is often a sentiment extreme, so gapping down need not extend down. Not gapping down at all Monday wouldn’t change the trend change that was confirmed Friday, requring an eventual third lower close.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Join us for the Saturday Strategy Session at 9:30am ET. We’ll discuss the broader market, and analyze any stocks of interest to you. [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.