Trading Plan for 9/3
[pay]Pattern notes.
Wednesday afternoon’s 4-point range lasted 4-1/2 hours, and then the last 20 minutes dived 5 points. Normally, the first breakout from an extended narrow range tends to be false. Its purpose is to attract help for sponsorship that was too weak to start trending from within the range. Last-minute breaks are different because stronger sponsorship doesn’t enter at the close.
That cuts both ways. If stronger buyers aren’t attracted at the close, then neither are strong sellers. I had noted earlier there was room for noise down to the afternoon’s 993’75 bias-down signal. A bigger drop would have required big sellers, and would have been a breakout. But the last-minute drop’s low was defined by 993’75.
If the last-minute drop’s purpose was bearish, it should have extended down by now. Indeed, price continues ranging narrowly around 993’75 almost two hours after the close. It did put price right back at the 992’00-993’00 target area identified here yesterday. Meaning that its test didn’t fulfill the decline’s selling pressure.
The drop’s purpose might have been bullish for near-term purposes: for example, more pessimism without sellers gaining new traction (i.e. “ineffectual pessimism”). This makes it easier for an interim bounce, whether in sympathy with stronger markets overnight or in reaction to the next econ report. Remember that false break from a narrow range? Ignore Wednesday afternoon’s 4-1/2 hour 4-pointer, and look at the 11-point range forming since Tuesday’s low. Its false break would be bigger, and so would the ultimate real trending.
Immediately extending down from Wednesday’s late drop either would resemble Tuesday morning’s dive, or else recover for a corrective rally into the weekend. This pattern shouldn’t sit still.
Indicators and Internals.
Wendesday’s last-minute dive also took RSIs to simultaneous oversold lows. This setup intraday would doom any bounce to failure. Instead, being a last-minute occurrence, its validity suffers similarly to the breakout described above. No other setups were left outstanding.
Thursday’s opportunities.
Because Wednesday’s last trending was down, and because its 999’50 afternoon high didn’t print during the last half-hour, gapping up above 999’50 would trigger a session-long rally. Gapping up to that area and then quickly extending through it decisively would qualify, but not hanging out there through the first half-hour. A break under 992’00 – even overnight – would be vulnerable to extending down. Aggressive traders might give it a benefit of the doubt, and a relatively tight stop. A recovery from another overnight low wouldn’t be very credible for very long. Two high profile econ reports could put both scenarios to the test.[/pay]