Trading Plan for 7/31

[pay]Pattern notes.
Wednesday’s session did optimists proud. The narrow overnight range never really probed any relevant pullback level before the open gapped up sharply. The gap up extended several points above the extended bias-up target. The eventual pullback bottomed upon touching the overnight high, instead of dipping into the prior cash session. And the afternoon’s recovery was steeper than any other leg since Monday’s low.

Optimism had already held sway over Tuesday’s session, which didn’t pull back at all after the open’s gap up, and barely dipped at all after rallying sharply higher into the afternoon.

None of which equates to being a sell signal – even my stuff isn’t that counter-intuitive. By the same token, two consecutive strong session gains are more likely to precede a third, and less likely to be reversed. Wednesday’s session did end while testing the afternoon’s bias-up target, so Thursday’s open should either refuel buyers by dipping 6 or 9 points, or attract new buyers by gapping up.

Indicators and Internals.
Tuesday’s internal spreads were never rewarded with a dip into negative territory. Wednesday’s internals also reflect more productivity by sellers than buyers, making some dip to a meaningful support level likely at some point intraday.

Thursday’s opening setup.
An overnight or opening dip has room down to ESu 1275’50-1278’25 without undermining a relatively quick recovery to resume the rally going into noon. Any lower would target 1271’00, where any lower would threaten to invalidate Wednesday’s late-afternoon surge. That would quickly undo the past two days’ progress and leave the market ill-prepared to absorb Friday’s Employment report. Otherwise an early 3-point gain above 1287’00 should put into play 1303’00 before again becoming vulnerable to the consequences of excessive optimism.[/pay]