Trading Plan for 9/3

[pay]Pattern notes.
The stunning rejection of Tuesday morning’s probe of prior highs is one of the most bearish patterns I have seen in the market for some time. The break under the 1283’00 area put sellers back in control. It also required that sellers be almost immediately productive, or else leave a void that would suck-in buyers for the potential to rally big.

Tuesday’s 1271’50 low probed the upper-end of the two consolidations that had developed during each of the past two weeks, whose lower-ends had tested the 1263’00 area. This event – the upper-end probe – typically resolves in either a bounce, or else a gap down under the consolidation’s lower-end. I found no pattern at Tuesday’s low to signal or require a bounce, so if there is a bounce overnight anyway, it would be considered only noise that is likely to resolve down.

The 1263’00 area has required a retest, its retest is likely to be an intraday probe, and the probe is likely to evolve into a new downleg. Unless Tuesday’s bearish pattern is somehow rejected and refuted Wednesday, this could be a very bearish week.

Indicators and Internals.
MACD & RSI diverged positively several times throughout Tuesday’s decline. But the setups were largely ignored in favor of printing lower lows. The last hour’s bounce retraced back to the origin of the first ignored positive divergence, then closed there. Whether or not followed by a bounce overnight, the timing suggests that buyers did not gain traction.

Wednesday’s opening setup.
Closing under 1278’00 confirmed that sellers are back in control. An overnight bounce to 1281’00-1283’00 that reverses back under 1275’00 would signal that Tuesday’s decline was bleeding into Wednesday. Any higher bounce would rob sellers of their traction, but I wouldn’t turn bullish without S&Ps closing above 1291’50. [/pay]