Trading Plan for 8/25

A bullish Jobless Claims report Thursday could leverage Wednesday’s two positive surprises (Durable Goods and FHFA Housing Price Index) by establishing a trend. But higher claims would suggest Wednesday’s econ reports were outliers, and undermine the session’s rally. [pay]

Pattern points… (Setups and technicals)
The timing of Wednesday’s late breakout suggests it was sponsored by weak hands, making it unlikely to gain traction. That didn’t stop it from being productive, so long as stronger sellers didn’t step in. And they didn’t. The break above 1166.50 nearly touched 1177.00.

Congestion at the late rally’s high overlapped 1174.00 and 1175.00 – the morning’s high and the next higher objective. Without closing decisively above either, the late rally was only a retest of both. Closing above them would have been bullish, but unlikely considering the breakout’s weak sponsorship. Closing below them without actually touching would have been bullish, but impatient buyers stretched the rubber band tighter.

Already, the breakout has been retraced back to 1165.50. That’s not deep enough to flush out the weak sponsorship. And it’s too early. Resuming the rally without dipping further and longer would only find another temporary upleg. Extending down far enough to launch a bigger upleg would be exposed to sellers gaining traction instead.

What’s Next… (Outlook and opportunities)
1163.50 and probably also 1160.50 should be touched before a rally would be credible for extending higher to 1185.00 and possibly 1193.00. Probing under 1159.75 would become vulnerable to a bigger drop targeting 1146.00 and potentially 1139.00. [/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.