Trading Plan for 7/16

[pay]Pattern notes.
The template for Tuesday’s last leg – whether up or down – called for it to trend sharply and relentlessly into the close. Market forces chose to drop instead of rally, falling 20 points in 40 minutes (from 5 points higher 10 minutes earlier) down to ESu 1210’50. The first target at 1218’00 forced the drop’s longest consolidation of almost 15 minutes.

An 8-point bounce overnight recovered to 1218’00. MACD & RSI just diverged negatively on its retest, sending S&Ps down 4 points to 1214’00. Any lower would target negative territory. Absent some sort of substantial external intervention, the decline’s momentum remains intact and next targeting 1194’00. An open above the 1218’00 area would trigger a bigger corrective bounce back towards Tuesday’s highs.

Indicators and Internals.
The 3-minute RSI was oversold at Tuesday’s 1200’75 low, requiring its retest. Apart from pattern measurements and extensions, Tuesday’s low is the only unfinished business at lower levels. Its retest won’t necessarily satisfy sellers, but the market would become vulnerable to some sort of obligatory bounce. Tuesday’s internals suggest the retest is likely, since the spread between NYSE declining and advancing issues was wider than the spread down and up volume that produced it.

Tuesday’s opening setup.
Wednesday morning’s econ calendar is highlighted by CPI at 8:30. The afternoon is highlighted by FOMC minutes at 2:00, which should be fun. In between the market might resolve unfinished business below, and EIA Petroleum data might help push Crude Oil sharply lower. If those two variables could align properly and timely, then the FOMC minutes could trigger a recovery attempt or accelerate one already underway. Otherwise closing at lower lows would put into play new targets several dozen points lower.[/pay]