Trading Plan for 7/16

[pay]Pattern notes.
Wednesday was the third consecutive session of unchecked optimism. Except for a pre-open dip whose recovery triggered a buy signal at 911’00,  no other pullback created long-entry parameters. The morning’s bias-up signal did trigger. But only the noon hour’s consolidation flirted with a buy signal whose eventual break reached 930’75.

The last hour’s high was 2 ticks above the afternoon’s bias-up target, reflecting satisfied buying pressure. It also tested June 30’s 926’25 pivotal high (circled green), which is the high prior to July 1’s 928’25 actual high (circled red). That’s a lot of buying pressure.

The decline can’t resume until a prior low is broken as support. This defining line rises along with the market, lowered only occasionally. In this environment, pullbacks are likely to recover, although resistance is required to break.

An alternative to breaking under a prior low is to reject a single upleg. Thursday’s open has that opportunity if it gaps down under 924’00 into Wednesday’s noon hour range. That’s no so much unlikely as it is rare, and any shallower opening dip would be likely to recover for a probe of Wednesday’s highs.

Meanwhile, a fourth consecutive session of unchecked optimism isn’t likely, so opening strength would be vulnerable to forming at least a near-term peak. Such a peak might prove to be more durable, depending upon how much Friday’s expiration session proved it had influenced this week’s rally. More optimism throughout Thursday could extend higher through Monday’s open, or at least prevent sellers from gaining traction through then.

Indicators and Internals.
RSIs diverged negatively several times intraday, of course never retracing back under a prior low. I hesitate to classify the series as indicating bigger buying coming down the pipeline since it started so late. Most of the session’s gain had already transpired, so the ignored distribution was the bigger buying pressure.

Thursday’s opportunities.
High-profile earnings announcements before the open include IBM, JPM and GOOG. It’s not important what they are, or whether they beat estimates (whisper, or otherwise). My focus is on how the market reacts – not just intraday, but intraday relative to the close. Jobless Claims is also pre-open, and the Philly Fed Survey at 10:00. [/pay]