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Trading Plan for 7/25 – If, Then… Market Timing

Trading Plan for 7/25

By Rod David | July 22, 2011 - 9:54 pm

Breaking news: Dueling press conferences Friday evening revealed that debt talks had hit their biggest impasse, yet. Futures had closed already, but Spyders (SPY) dropped back down to Friday’s 1333.00 lows… As that news turned 180 degrees, so did Oslo’s news, which now suggests the “terrorist” is not part of a wider network. [pay]

Pattern points… (Setups and technicals)
The combination of Friday afternoon illiquidity, with headline paralysis, locked price into a narrow 2-point range around 1341.50. Even a last-minute plunge (relatively speaking) to 1338.50 was retraced back up to 1342.50, settling just under 1341.50.

Thursday and Friday were the second consecutive instance of trending up one day to resistance – 1341.00 – and the next day absorbing dips. Tuesday had also trended up to resistance – 1323.50 – and Wednesday absorbed minor dips.

Pullbacks are entirely appropriate during trending. This is how a trend refuels. But a healthy rally’s pullbacks should close under resistance, not still testing it, leaving a discount to help resume the rally. Or the pullback’s intraday recover should close above resistance, triggering a breakout whose momentum carries the rally overnight.

But Tuesday and Wednesday each closed while testing 1323.50 resistance. Then Thursday and Friday each closed while testing 1341.00 resistance. Neither is a sell signal, but each is tentative and not gaining traction.

Some of the week’s afternoon paralysis could be dismissed to anxiousness ahead of quarterly earnings dribbling out after the close. And some could be due to the debt deal’s headline risk. Friday’s hesitation could also be due to the morning’s attacks in Oslo.

What’s Next… (Outlook and opportunities)
55 point up from Monday’s bottom at the decline’s 1292.25 target could still extend higher. Pullbacks – productive pullbacks – have room down to 1330.50 before the rally loses traction. Closing under 1323.50 would signal the rally had ended already. [/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.

Posted in Market Wrap, S&P