Stock market remains technically firm, doesn't reject gains

July 30, 2012 03:24 PM
Overnight losses stop short of key level


After ruminating on it all weekend… Monday’s session chose not to reject Friday’s late surge. Sunday night’s dip retraced 61.8% of it, resolving in a probe of new highs. Does not rejecting the surge equate to confirming it? Not quite yet.

Pattern points… (Setups and technicals)

The rally’s problem is not that it hasn’t extended higher. It isn’t even much of a problem that the attempt to extend higher failed. The problem is that the attempt to extend higher Monday morning came after a sufficient retracement of Friday afternoon’s surge, and yet Monday morning’s rally was retraced, too.

Not immediately rejecting Friday’s late surge gave it the potential to extend higher. That’s what led to Monday morning’s rally. Not extending higher after an entire session does suggest a deeper pullback is needed first. That’s where Monday’s close left us. Extending higher Tuesday without a deeper pullback would be premature.

Monday afternoon’s relatively narrow range extended through several timing windows. This makes the rejection of Monday morning’s fresh high less likely to reverse straight down. Another probe above Friday’s 1384.25-1385.00 highs cannot be discounted — perhaps up to 1390.50 — but it would be vulnerable to reversing down more durably. Sellers must retake control pretty much at Tuesday’s open to avoid probing fresh highs.

What’s Next… (Outlook and opportunities)

Monday’s close produced a fourth retest of 1381.00-1382.00 for the afternoon. This “ineffectual optimism” is treading water, but it’s not ready to plunge just yet. And if it does plunge first, then we’ll probably find the water isn’t terribly deep — perhaps down to 1366.00-1367.00 or to 1361.00-1362.00.

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.

About the Author

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog