Trading Plan for 7/21

[pay]About that close (How the prior session ended)
Tuesday’s rally extended higher into the close. The prior hour’s Complex Ascending Triangle’s 161.8% target at 1080.00 was met and held while RSIs diverged negatively. Various price action intraday had indicated that weak hands were sponsoring the bounce. This was proved by a spike up to 1085.00 after the close on AAPL’s earnings, which was immediately retraced.

Pattern points (And technical influences)
Tuesday’s open did everything its pattern was supposed to do. A rally barely hesitated to get underway, and it extended higher through the morning. Various price action indicated that weak hands were sponsoring the bounce. So, the bounce’s only objective was to fill the gap back to Monday’s futures close. It was filled.

Tuesday afternoon also did everything the morning was supposed to do. It just didn’t need to. The morning’s bounce wasn’t necessarily going to be reversed. But the afternoon extended much, much higher.

Perhaps Tuesday’s rally is the start of a bigger upleg. That has to be said, because it did originate from a significant level (just above 1050.00) and rallied throughout the day. Regardless, its sponsorship was weak hands, and there’s now a gap outstanding at Tuesday’s 1053.50 open.

Gapping up Wednesday to and through 1085.00 would extend Tuesday’s rally. Serious selling could be marginalized until probing 1100.00 by 10-15 points. Opening weaker Wednesday – or under 1085.00 – could still extend into positive territory intraday, but probably not through the close.

Bottom line (My underlying premise)
If Wednesday ends without a reversal down, or without some distribution above Tuesday’s highs, then sellers will have abdicated for now. The earliest proof that a new rally leg is not underway would be to close under 1065.00. Earnings news gets blindsided Wednesday by Bernanke’s testimony.  Both sets of news might blindside the remnants of Tuesday’s rally. [/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.