Trading Plan for 7/29

If the high’s retest intends to become a new upleg… then the dip probably should have bee deeper and more protracted dip than just through Monday’s open. At least the recovery wasn’t overly-optimistic, which would have left Tuesday’s open (if not Monday night) vulnerable to retracing the bounce.

Pattern points… (Setups and technicals)[pay]
Friday’s pattern had created two likely targets below, which Monday morning tested and held. The rally’s pre-open tactic of bouncing worked to to absorb selling pressure, which confirms the rally is still in control. That was a major takeaway from this weekend’s Strategy Session.

That takeaway was based in no small part on the relative performances among SPX, Dow and NDX. The latter-most was still reflecting a speculative risk-on mentality into the weekend, despite Friday’s drop. Now we’ll be watching for outperformance by the more consistent Dow to suggest the rally is ending — especially if NDX were to probe under prior lows.

Regardless, Monday’s pattern doesn’t require extending higher, let alone extending higher without delay. That’s likely, but inserting another corrective dip to any degree would tell us a bigger rally was underway. Just extending higher without delay would be considered part of the topping pattern.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday’s FOMC policy statement probably won’t impact Tuesday’s price action, but Monday volatility tends not to dissipate too quickly. Whether retesting last week’s highs or Monday’s low, new sponsorship is likely to be attracted.[/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.