Trading Plan for 1/12

A funny thing happened on the way to the highs… Tuesday morning’s gap up triggered the bias-up. An ascending triangle was triggered and its target was met and held. Another pattern formed whose objective was the bias-up target. But somebody exited the market in a very big way, pressuring price sharply lower. [pay]

Pattern points… (Setups and technicals)
Regardless of the intraday range and pattern, Tuesday’s buyers were expected not to gain traction. The gap up’s high was probed, and could have extended even higher. But the open’s high would hold as resistance.

This was expected because, despite their efforts, Monday’s buyers hadn’t gained traction either. It’s a vicious cycle, and it can continue indefinitely. The pattern tends to accompany last gasp efforts to extend the trend. So, higher highs Wednesday are likely to begin by gapping up. Not gapping up could still trend up intraday, and still be likely to fail – much more dramatically.

Higher highs Tuesday would have targeted the morning’s 1277.75 bias-up target. The morning’s bias environment was exited above the triggered bias-up signal, so its target then becomes unfinished business above. And it remains outstanding until tested, regardless of the path there or detours along the way.

One more test of the highs remains possible, and it remains unlikely to gain traction. Meanwhile, any further rally is challenged by the attraction down to Tuesday’s 1265.50 low, whose oversold RSIs require a retest. Anything but the briefest dip could gain traction, too.

What’s Next… (Outlook and opportunities)
Tuesday’s closing action trended up, and its session 1265.50 low came during the afternoon, preceding the last hour. So, gapping down under  1265.50 would trigger a session-long decline. This market range is like a tinderbox, and that could be like throwing a lit match into it.

Just gapping down to the 1267.50 area would be likelier to recover into positive territory. Similarly, gapping up would be vulnerable to giving back its gains, unless immediately recovering 1272.50-1273.50. The afternoon’s Beige Book release could turn this into a traditional “Wreversal Wednesday” that undoes early trending. [/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.