Trading Plan for 7/17

If the rally were living dangerously… then it would have tried to greet Wednesday’s news while probing fresh highs. In that regard, Tuesday’s retracement back to Friday’s lows could be bullish from a contrarian perspective.

Pattern points… (Setups and technicals)[pay]
Monday’s last hour had signaled the session’s upward momentum to 1679.50 had lapsed. That upward momentum was the product of gapping up above Friday’s 1674.25 high, which was tested by an upleg originating from Friday’s 1667.00 noon hour low.

The momentum failure was retraced back down to 1667.00. Tuesday’s open momentarily touched Monday’s 1679.50 high, so its intraday reaction down retraced two days of gains. Try, try again?

Getting market participation back up to its pre-holiday levels initially found some kindred sponsorship for last week’s rally. But its extension higher is struggling. And might soon fail. Testing fresh highs for the week can’t yet be discounted, and testing fresh highs for the week can’t yet be trusted to resume the rally.

Perhaps Tuesday’s drop was defensive posturing ahead of Bernanke’s first part of his two-day Humphrey-Hawkins testimony Wednesday. His remarks will be un-embargoed an hour before the open, so any overnight trending could be retraced and reversed before the morning’s bias is signaled.

[/pay]What’s Next… (Outlook and opportunities)[pay]
An dip under 1669.50 and 1667.25 could extend to test 1663.00 — all overnight, and already be recovering back above 1672.50 before the open. But extending down under Tuesday’s 1666.50 low Wednesday would all but ensure testing 1648.00 “lower prior highs” next.[/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.