Trading Plan for 9/5

[pay]Pattern notes.
I had described Tuesday’s session long decline as among the most bearish I had seen in some time. There’s no better evidence than Thursday’s plummet. And by the way, Thursday’s session was no less bearish than Tuesday. Wednesday’s interim session had ended flat after chipping away at support, apparently making it easier for Thursday’s session to drop through it.

I don’t expect Friday’s session isn’t likely to serve as a similar stalking horse. Its choices are probably limited to either refueling sellers with a steep bounce, or else resuming the week’s decline in a very big way. Possibly both.

Thursday’s low was defined by the 1235’00 target, which also filled a gap there that had remained outstanding. Having fulfilled the selling pressure that created this target, a bounce would help to refuel sellers, either overnight or in reaction to Friday’s Employment report.

Or never. Markets tend to stabilize in the afternoon prior to a weighty economic report, which Thursday afternoon certainly did not. The drop went beyond qualifying as excessive pessimism that was discounting too much bad news into price. Instead the drop created momentum that might swallow Friday’s news on the way to new lows for the year.

Indicators and Internals.
Internal spreads were extreme Thursday. Similar to the discussion above, their ratios went beyond being lopsided, and simply reflected a selling momentum likely to extend further.

Friday’s opening setup.
The 1235’00 level’s significance cannot be overstated. There is room for bouncing up to 1251’00 without buyers gaining traction, and sellers could be refueled. The level’s significance could also yield a sizable gap down whose only concern is whether its selling pressure formed a capitulation low. In either event, the ultimate resolution could very easily be a “crash” like session that targets new lows under 1200’00.[/pay]