Trading Plan for 1/11

Monday’s gap down was a gift to buyers. But they did a poor job opening it. Despite trending up all day, buyers gained no traction for their efforts. A gap up Tuesday may be the only way to avoid new lows.[pay]

Pattern points… (Setups and technicals)
Monday afternoon’s test of 1268.00 did fill the gap back to Friday’s 1267.50 close. The close dipped back under Thursday afternoon’s 1267.25 support. For a second consecutive day, buyers expended energy through the afternoon without gaining traction for their efforts.

This is not “ineffectual pessimism” that might otherwise be bullish. Pessimism was extreme, gapping down and essentially spending the entire session in negative territory. But the open’s low stopped short of touching Friday’s prior low, let alone probing it. And there was no afternoon probe of new lows to be absorbed.

Monday morning’s bias-down was rejected, yet buyers couldn’t get out of negative territory. Their only accomplishment was to fill the gap back to Friday’s close, and neutralize its attraction above. The last-minute reaction down did hold above 1264.50, so the bounce could extend higher. But any further rally would not be durable, launching from an unstable base.

What’s Next… (Outlook and opportunities)
A rally that doesn’t gain traction can extend higher by gapping up. Maintaining a recovery above 1269.50 would target a retest of last week’s 1277.00 overnight highs. Not gapping up – or not maintaining a gap up – would target fresh lows under 1258.00. And a fresh low at this stage of the pattern is likely to extend sharply, initially to 1250.00.[/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.