Trading Plan for 11/29

Did Friday’s drop tell us the market’s next direction? The timing was right for an inflection point, and they don’t inflect much more obviously than that. Just need to justify the close’s excess pessimism… [pay]

Pattern points… (Setups and technicals)
The nearby chart doesn’t include Thanksgiving’s last-minute Globex surge to 1200.00. The sell-off to 1182.50 before Friday’s open is nonetheless impressive. So is the post-open bounce which retraced 61.8% of the drop.

Friday’s session formed a Symmetrical Triangle. The cash session close equated to 1188.00, which coincided with the Triangle’s uptrending support. Futures continued dropping to the pattern’s 61.8% target at 1183.00 (red boxes).

Post-close trending is often excessive pessimism (or optimism). Excessive pessimism that meets a target can form a significant bottom. Usually, that’s when there’s a reaction before the close, but there wasn’t any time for that Friday – in fact, the break didn’t even happen until after the close.

When there’s no reaction before the close, one target’s test usually gaps to the next. And the Triangle’s 161.8% target is 1177.00. Its break would extend to the Triangle’s 261.8% target at 1171.00. That’s where things get interesting, as the following chart shows. Either the two-week old trend change will have ended, or a steeper leg will begin.

Alternatively, Friday’s post-close drop will reject its test of 1183.00, gapping up to and/or through its 1188.00 origin. Recovering 1191.00 would target yet another test of 1199.00, this time to trigger a Complex Ascending Triangle targeting new highs. This alternative should be obvious well before Monday’s open if it is valid at all.

What’s Next… (Outlook and opportunities)
Oversold RSIs at Friday’s post-close low are similar to closing at a target – the vulnerability to a bounce only exaggerates the selling that created the conditions. Two big developments should be known before Sunday night (whether U.S. / S. Korea war exercises spark a reaction, and whether Ireland settles on bailout terms). Favorable news must trigger more than a momentary relief rally that recovers 1188.00-1191.00 to avoid extending down to 1171.00.[/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.