Trading Plan for 7/26

Tuesday night’s rally seemed… to prove out the bullish scenario that was created by Tuesday’s close. Wednesday’s close was similar, also recovering from a test of relevant support. If the second time isn’t a charm, then it can be an utter failure.

Pattern points… (Setups and technicals)[pay]
Wednesday’s recovery stopped short of touching the open’s 1339.50 high. Its reaction down to 1330.50 stopped appropriately short of triggering a hold-short through the close. A very last-minute surge barely closed the cash session at 1333.50 before extending up to 1335.50.

The bullish template considers the recovery’s premature peak as being pessimism, which is potentially bullish from a contrarian perspective. The reaction down was designed to keep buying pressure pent-up and available to resume the rally Thursday. After another overnight rally, Thursday’s open could be testing 1346.00.

RSIs diverged positively at 1330.50 support as the position-squaring window lapsed at 3:52. The closing surge already reaped the benefit of that setup. The surge is equally vulnerable to being retraced overnight or to simply extending higher. No matter how deep, an overnight dip should be quick, and quickly recovered, or a bullish open Thursday would become unlikely.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Fresh lows overnight under 1330.50 is not required, but it would likely recover, and its recovery back above 1333.50-1335.50 would be very bullish. Look out below otherwise. Fresh lows under 1330.50 that don’t recover by the open — well before the open — would suggest that Wednesday’s rally had failed to gain traction. And that’s not a suggestion the market can handle right now.[/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.