Trading Plan for 7/17
[pay]Pattern notes.
Is it expiration’s influence? Is Health Care reform about to be pronounced DOA? Is it a perfect storm of news items since last week’s 966’00 target was met? Must anything be behind this week’s unchecked optimism?
Wednesday’s simultaneous test of June 30 and July 1 pivotal and actual highs at 926’00-928’25 formed a setup that tends to resolve down. Sponsorship that produces such an extreme is excessively aggressive, where durable sponsorship would have inserted a corrective pullback between the two.
In this context, Thursday morning’s failed probe(s) above Wednesday’s highs were appropriate. But as has been the case all week, sellers were never offered a dip to gain traction. A void was created when the surge’s sponsorship peaked, and sellers weren’t exploiting it, so the market sucked in buyers to fill the void.
A 12-point surge eventually appeared, and soon extended to 15 points at almost 941’00. It originated appropriately at the lower-end of 926’00-928’25. And it originated appropriately at 1:30, after the market ranged sideways through the noon hour. And it would be rejected appropriately by gapping down Friday under Thursday afternoon’s 926’00 last relative low. This could put the expiration session into decline, perhaps the only chance sellers have for regaining traction before Monday afternoon.
Otherwise, Thursday’s late surge opened up a lot of room to absorb a more modest pullback without breaking under 928’25 “lower prior highs,” let alone under 926’00 prior lows. S&Ps reacted negatively to GOOG’s own negative reaction and IBM’s positive reaction, currently testing 934’25. That’s 1 point short of even signaling a test of 928’25, whose test is more likely to bounce than to break under 926’00.
Indicators and Internals.
3-minute RSI was pegged in overbought territory throughout most of its late surge to 938’00. After finally dipping from overbought, the next high’s peak were terminal. There is no requirement to retest these highs. Meanwhile, 1-minute RSI attacked oversold territory in the post-close dip, but an hour of deteriorating price hasn’t seen RSI worsen. So it is premature to consider that sellers may be retaking control.
Friday’s opportunities.
BAC, C, and GE are among the highest-profile earnings announcements on the calendar. Housing Starts are due at 8:30. If all this ammo can’t shoot down S&Ps to sustain a break under 926’00-928’25, then the balance of the session should trade flat to higher. Probably more flat than higher, temporarily probing Thursday’s highs up to the 942’00 area. Any other day might still be able to break the range late in the day, but that’s less likely on expiration days. An early break beyond the 926’00-942’25 range is perhaps the only trending opportunity before Monday afternoon.[/pay]