Trading Plan for 8/5

[pay]Pattern notes.
Monday’s breakout session was followed by a gap down and sideways ranging. That is, until the session’s last 15 minutes when a 6-7 point surge took the close to new highs. A noon hour probe of higher highs had already fallen back under Monday’s highs. The surge’s origin was too late to qualify as confirmation, so another near-term downleg is likely to begin within minutes of Wednesday’s open.

Downlegs produced by this setup range widely in duration and degree. More important than price reversing down is price not extending higher – the longer that price trades flat from here, the deeper the eventual drop. Probes of higher highs should fail to gain traction, serving only to further trap buyers.

Dropping immediately Wednesday could absorb selling pressure within hours, perhaps bottoming Thursday ahead of Friday morning’s Employment Situation report. Probing higher highs first, instead, would be appropriate for the pattern so long as each rally attempt were retraced back to and/or through its origin.

Notice how this setup’s influences don’t preclude the market from probing higher highs, and don’t require an immediate downturn. The setup requires only that buyers don’t gain any traction. Regardless, Tuesday’s too-late surge should be invalidated by Wednesday’s close for confirmation.

Indicators and Internals.
Simultaneously oversold RSIs at the 992′00 low before Tuesday’s open all but require a retest. This is added to Monday morning’s 988′75 low. Tuesday afternoon’s 997′00 low shared the same properties, but its retest was already neutralized just before the last-minute surge. RSIs diverged negatively into higher highs after the Globex open, underscoring the weakened buying pressure.

Wednesday’s opportunities.
Tuesday’s last trending was up and the afternoon’s 997′00 low printed prior to the last half-hour. So, gapping down Wednesday under 997′00 would signal a session-long decline. Otherwise, extending higher first would target 1009′00-1011′00, probably within the first 15 minutes of volatility, vulnerable to be reversed down soon after. Such volatility will have its catalysts: Two pieces of jobs data come pre-open during this Employment Situation week. Then two more econ reports are scheduled for 30 minutes after the open at 10:00.[/pay]