Trading Plan for 8/7
[pay]Pattern notes.
Wednesday’s path largely followed the expected template calling for a pullback to be recovered back to prior highs. The pullback was nearly 3 points deeper and several hours longer than expected. But the afternoon’s rally peaked at the ESu 1291’75 target nonetheless.
The premise of the template has yet to be proved. The pullback’s purpose was to refuel more speculative buyers to trap as many longs as possible, so the new high could be hit hard by sellers. The longer pullback left less time for that last stage, so the session closed just off its highs at 1288’00. Recent highs were barely probed intraday, and they should be, so their having held as resistance doesn’t reveal much about the quality of selling pressure. As for buyers, the modest probe of recent highs could either mean they’re tired, or patient. Not enough information to choose.
The failed higher high scenario need not evolve entirely during a single session, so the next day or two could contain the trend change. They could also contain the new rally leg. Either template would be appropriate here, so I will let the market decide. An immediate drop overnight would be less appropriate than modest pullbacks. So Wednesday’s last-hour dip or a little lower to 1283’00 should launch a retest of Wednesday’s high, probably up to 1294’00-1295’00 or possibly to 1303’00 before becoming vulnerable to sellers regaining control.
Indicators and Internals.
3-minute RSI was overbought while Wednesday’s high was fulfilling its target, requiring the high’s retest once the last hour’s pullback has finished. It was the session’s only overbought or oversold 3-min RSI reading, which speaks to the generally complacent sentiment. That’s not bullish. Internal spreads were almost equally weighted for the second consecutive session, so Tuesday’s rally didn’t improve optimism, which also doesn’t seem bullish.
Thursday’s opening setup.
BOE and ECB interest rate decisions will influence price action well before the cash session open. Jobless Claims won’t be far behind, and then Pending Home Sales will follow 30 minutes after the open. This should provide plenty of volatility to test both buyers and sellers. The otherwise listless RSI won’t help S&Ps extend beyond its nearest support or resistance, instead making a reversal back into the range likelier, at least the first couple of times that either end of the range is tested. [/pay]