Trading Plan for 7/17

[pay]Pattern notes.
Is it, or isn’t it? Wednesday’s session-long rally was relentless and substantial. It was the first to close above a prior session’s high in four weeks. It seems like a breath of fresh air because it stands out so starkly from its predecessors that this standard has become very easy to meet.

Wednesday’s cash session closed above every higher prior low it had probed intraday (the last being July 7’s 1240’75 low), signaling that buyers weren’t losing any traction they had gotten from their intraday gains. The critical part of that recovery was retraced after the cash session close and more deeply overnight down to 1238’00. The quick bout of pessimism suggests that buyers hadn’t become too cocky to sustain higher highs. Indeed, the overnight dip has already been recovered to back above Wednesday’s high, so at this point only a close today under the overnight low would signal the bounce had already ended.

The bounce can extend further to the ESu 1260’00 area, but any higher would stretch buyers too thinly for them to help form a bottom when this week’s 1200’75 low is inevitably retested. The quick-buck reward of rallying further would have potential to 1309’00-1314’00, but at the cost of refueling sellers for a much more brutal August slide. It’s the proverbial bird in the hand vs. two in the back of the head.

Indicators and Internals.
Well over four times more NYSE up volume than down volume produced only three times more advancing issues than decliners. The breadth of each internal makes an immediate drop unlikely, although sellers were more productive and deserve some reward. RSI has become overbought at the past couple of higher highs to help sustain the recovery attempt and absorb pullbacks.
Thursday’s opening setup.
The open is on-track for gapping up, and follow-through would threaten to probe July 3’s higher-prior low at 1251’75. It should be tested on this run, and the character of that test will help to define whether optimism is starting to get out of hand again. This morning’s econ reports are the week’s last, with two at 8:30 and one at 10:00. Favorable earnings reactions pre-market should help to maintain optimism for some weighty earnings announcements due after the close. [/pay]