Trading Plan for 7/23
[pay]Pattern notes.
Sellers stopped pressuring price down, just when it had become critical for them to continue. Buyers didn’t exactly overwhelm sellers – at least, not at first. The door was opened for sellers to retake control, they failed, and the vacuum sucked in buyers to take their place. Back above ESu 1263’00 didn’t immediately extend higher, but it eventually did, adding 15 points in 45 minutes to test 1278’00 at the close.
Buyers that can be “sucked in” aren’t the most durable kind. They were stretched pretty thinly into the close, optimistically ahead of several relatively major earnings announcements. The development’s bullish aspect is that it created a wide margin for a pullback to prior highs without damaging the breakout – almost 11 points off the high, down to 1267’25, before Tuesday’s late surge is invalidated into irrelevance. Even then, there is room to 1258’00-1260’00 before sellers gain traction to reverse the trend down.
Any lesser selling pressure is going to leave a gap outstanding back to Tuesday’s close, sort of a safety-tether to help guide a pullback to recovery. There is a template that would allow Tuesday’s higher highs to be maintained through Wednesday or retested after a pullback, and yet still see the market in decline next week. That would be too bad, because that template at this stage would reinstate the “crash” pattern.
Much depends upon buyers giving back little ground for little time. The rally’s goal will be to limit the retracement to be either too shallow to gain traction, or to be inappropriately timed and easily recovered before a relevant timing window.
Indicators and Internals.
The 3-min RSI at Tuesday’s high was overbought, but not as overbought as the high several points and several minutes prior. Consequently, it was only likely to be retested, but its retest is not required. The Globex open popped up near enough to the high to qualify as retesting it by proxy, so any further rallying won’t be due to unfinished business above.
Wednesday’s opening setup.
Earnings after Tuesday’s close from ETFC, WM, and YHOO were surprisingly disappointing. The immediate effect only took back 5 points. Then after the close these issues reversed up (WM duplicating WB’s action from Tuesday, but not waiting for the open). The Globex open retraced most of the last-minute dip, and extending above the cash session’s high should rally further. Beige Book comes out at 2:00 Wednesday, hitting an environment that is much different than similar events recently, and likely to maintain the increased volatility.[/pay]