Trading Plan for 7/16

If a top can’t form until retesting the pre-holiday high… then does Tuesday’s test qualify? The gap back to July 3’s close wasn’t filled, so neither was its high retested. But the structure containing both was pierced at Tuesday’s open. And held.

Pattern points… (Setups and technicals)[pay]
Remember, trend extremes into holidays don’t launch reversals. That’s why we’ve been expecting the interim dip to recover — even if only to retest the pre-holiday high.

Unlike closing at a new trend extreme on Fridays, holiday extremes don’t require a subsequent new trend extreme close. Having said that, that’s usually how the retest resolves. And usually that new extreme close is just the pre-holiday trend extending.

Perhaps Tuesday’s shallow retest of the pre-holiday high was a reflection of pessimism. That would be bullish from a contrarian perspective. The hesitation there suggests an eventual recovery through it.

Still, the pre-holiday high has been retested, shallowly or not. Where last week’s drop was expected to recover, now we don’t have that assurance. No doubt, the volatility is exacerbated by expiration. WedEX should clarify the market’s intent at Wednesday’s close. A bullish signal is no likelier than a bearish signal, even if new highs were probed intraday.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Day-two of the Fed Chair’s congressional testimony usually offers predictable plays. Wednesday’s headline-rich environment — headlines that persist well into the afternoon, until GOOG and IBM post-close earnings tamp down — makes the session vulnerable to multiple contradictory reactions. And while a new high isn’t required, its reaction is vulnerable equally to reacting down or extending higher, in either event sharply. [/pay]

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.