Trading Plan for 11/24
[pay]Pattern notes.
I toyed with the idea of starting this post with, “Ladies & Gentlemen, start your engines.” Confirmation of a new downleg was denied when the market avoided a second consecutive lower close under Thursday’s breakout. Although not normally equivalent to being a buy signal, some things about this week (addressed below) make that possible, not certain. But “start your engines” should probably be reserved for a gap up above Thursday’s highs.
Friday’s action might have produced A bottom, not THE bottom. And it’s not a bottom at all if Monday’s open rejects Friday’s last-hour surge. That rejection could be defined as being almost anything less than extending the gain through Monday’s open. It would be official under ESz 770’00 and irrecoverable under 754’00. But it wouldn’t start to be a concern until failing to hold above 780’00.
Expiration may have exacerbated Friday’s last-hour rally, but expiration influences often influence the following week’s open. Then there is the oncoming seasonal bullishness of a holiday weekend. If refueling the surge needs a pullback any deeper than 780’00, that would start to suggest the surge had only refueled sellers. It would be very bearish not to exploit expiration follow-through and seasonal bullishness ahead.
Be mindful that Friday’s last hour was equally vulnerable both to dropping or to rallying 50 points. The repeated tests of Thursday’s low so late in the day were either chipping away at support, or else coiling for a short-squeeze. The drop was the surer bet, prevented only by news from the incoming administration. Prevented, or interrupted.
The rally was triggered by news of appointments to be proposed by the incoming administration. It wasn’t Geithner, Richardson or Summers specifically, but something firm for the markets to absorb. The market will grudgingly return to discounting the unknown if that information spigot suddenly runs dry, which we’ll know by Monday’s open pulling back too far. Otherwise, we’ll assume the market dodged a big bullet Friday. For now.
Indicators and Internals.
The last-hour surge gained 25 points on two higher highs despite overbought 3-minute RSI on the first high. The first 1-minute RSI divergence came at the cash session close to trigger a 12-point drop before futures closed. It’s difficult to consider the post-close pullback as being the fulfillment of earlier technical problems. The cash session open will need to gap up above Friday’s last-minute high if the rally can continue without paying this debt.
Monday’s opportunities.
A pullback has room down to 780’00 without threatening to invalidate Friday’s last-hour surge. Almost any lower – especially by gapping under 780’00 – would target 770’00 whose break would all but reject the rally, confirmed under 754’00. Monday’s first hour isn’t any less likely than Friday’s last hour to trade out flat. So a dip to 780’00 should probably be recovered aggressively overnight to avoid the rejection scenario. And if the “Ladies & Gentlemen, start your engines” scenario wants to announce its arrival appropriately, then the cash session should gap up above Thursday’s 816’00-821’00 high.[/pay]