Trading Plan for 8/4

[pay]Pattern notes.
The majority of Friday’s session bounced frustratingly within a 10-point range. This was in spite of the open’s 21-point slide, extending Thursday’s last-hour 26-point slide. With the weekend’s illiquidity fast-approaching, sellers had momentum and motive in their favor. But the open’s drop ended their reign on the day. Had sellers taken things too far, or had they simply gotten ahead of themselves?

Perhaps a little of each. Friday’s extended, narrowing ESu 1254’00-1263’50 range is likely to break falsely in one direction, then reverse more substantially in the opposite direction. A false break need not be shallow before reversing back into and through Friday’s trading range, especially if Friday’s ranging extends through Monday’s open. The longer that trending is delayed, the more likely it will not be immediately reversed, probably not before visiting 1269’00 above, or 1248’50 below.

The false break scenario is undermined when started by gapping beyond the range, and maintained through a relevant timing window. Undermined, but not necessarily invalidated. Regardless of gapping open or not, 1272’50-1275’50 is meaningful resistance that can be probed briefly intraday back to last week’s 1282’50 highs, and still be likely to hold on a closing basis. A close above 1272’50-1275’50 isn’t likely unless buyers are back in control.

Indicators and Internals.
20% more NYSE down volume than up volume produced only 5% more declining issues than advancers. I don’t think Monday’s session is very obligated to reward buyers for their relative productivity, because they weren’t much more productive than sellers. Meanwhile, MACD & RSI each ranged around their neutral readings to mirror price action, giving no signal or new unfinished business either way.

Monday’s opening setup.
The upward slope of Friday’s trading range reflects optimism, so I suspect the ultimate resolution will be down. So unless Monday’s open is indicated to gap down under Friday’s lows, the initial false break is likely to attempt trending up. Anxiousness ahead of Tuesday’s FOMC announcement will try to inhibit strong moves either way. Unless an uptrend attempt gaps through 1272’50-1275’50, or an initial drop is shallow, the rally is unlikely to resume.[/pay]