Trading Plan for 8/6
[pay]Pattern notes.
It’s not that sellers were mostly in hibernation Tuesday. Yes, actually, they were. But not physically asleep. Yeah, probably. S&Ps gapped up at the open, soon surged, trended higher into the FOMC news, and extended higher after its reaction. The eventual gain: 35 points. The biggest dip was down 8 points in 6 minutes in reaction to an 11-point, 3-minute surge. I wouldn’t characterize it so much as selling, as it was buyers stopping to catch their breath.
If selling was only a spectator sport Tuesday, then exactly what did buyers accomplish? Territory was acquired, but for how long, if none of the enemy was captured along the way? A lot of buying pressure was expended to traverse from the range’s lower-end to its upper-end. Targets are no longer available to attract price higher when needed to recover from a pullback. Tuesday’s success might prove only to be at stretching buyers thinly.
Regardless, Tuesday’s rally should at least initially stretch further Wednesday. The FOMC decision no longer hangs over the market, and there is something bullish about predictability. Even mildly bad news in the rear view mirror can be preferable to an unknown quantity coming through the windshield. But when this benefit fades soon after the open, the scene might resemble a game of musical chairs. The character and measurements of that pullback could be very predictive of the next 75-125 points either way.
Indicators and Internals.
Four times more NYSE up volume than down volume produced three times more advancing issues than decliners. The spread is wide enough to expect some follow-through, despite relatively less productive buyers. But their productivity seems even lighter considering that buyers essentially owned the day, and in a big way. Overbought 3-minute RSI at the cash session high was followed by negative divergence 1 tick higher after the Globex open – the pattern is small, and its pullback target is incorporated into the comments below.*
Wednesday’s opening setup.
We’ll know very soon whether Tuesday’s rally accomplished something other than refueling sellers. This being a Wreversal Wednesday, extending too far too quickly might be just what Tuesday’s patient sellers had in mind.
Tuesday’s ESu 1285’00 high attacked recent highs that are 5-6 points higher. If sellers weren’t interested in preventing that attack, then they won’t try to stop a probe of higher highs, maybe after pulling back to 1279’00 so as not to raise suspicion (*and to fulfill the negative divergence described above). But then, similar to Tuesday’s test of 1260’00, a break above 1303’00 won’t be likely unless the rally were extending much higher again.
Programming note: Don’t forget that if you miss the Morning Market Tour, it’s recording is linked from the blog’s sidebar and available by 9:15 daily.[/pay]