Trading Plan for 7/18

[pay]Pattern notes.
Thursday’s high fulfilled the ESu 1260’00 area corrective bounce target discussed Wednesday morning. The 11-point drop from there wasn’t going to extend the extra 2 points before the close to fulfill that leg’s 1249’75 target, and the rally wasn’t going to resume either. So the last hour only ranged back to the target area, and waited for GOOG earnings. S&Ps reacted at the Globex open by gapping down to the unmet target.

At least 7 points more have been lost through midnight to 1242’00. That’s 1 point from Thursday’s low, and a complete retracement back to support that didn’t need to be retested – both are under Wednesday’s prior high close, and Thursday’s low had already successfully retested the overnight range. Opening much lower than this Friday morning would trigger an abrupt end to the corrective bounce from Tuesday’s lows.

If Friday ends without having given back much ground, then the 1260’00 area corrective bounce target is likely just the correction’s first upleg, with more to come next week.

Indicators and Internals.
MACD & RSI diverged positively into the overnight test of 1242’00 which could preface a 3-point bounce. If not, then Friday’s open is probably being greeted at much lower levels.

Friday’s opening setup.
Before Thursday night’s Globex drop, I was halfway expecting Friday to range narrowly. Not anymore, not if this overnight action persists. Besides the technical divergence noted above, several things might change the landscape before Friday’s open, most notably earnings and expiration. (No econ reports are scheduled.) But a gap up maintained above the 1250’00 area would again be likely to range narrowly through the day – perhaps more likely for having absorbed the overnight selling. Otherwise, I would halfway expect to end the week at new lows.

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