Trading Plan for 1/13

[pay]Pattern notes.
Having left outstanding the 880’00 target to maintain the decline’s momentum through the weekend, sellers were able to extend the drop another 25 points to 860’25. And having lacked any intraday bounce above prior highs, the last half-hour surged 8 points to do just that. To the extent that two days can form a tradition, it appears that sellers are finding ways to preserve selling pressure as unfinished business for the following session.

Just closing under 866’00-868’00 would have made Tuesday’s open likely to gap under prior lows at 853’00. So the cash session’s last-minute bounce to 866’00-868’00 either constituted the corrective bounce, or else most of it. The bounce has room up to 872’00 overnight.
This downleg’s ultimate objective is to retrace last year’s last week rally. Monday’s low retraced so much of it – both measured against the interim gain, and for dipping back under prior highs – that the last week rally’s origin is already likely to be broken eventually, regardless of any interim bounce.

Indicators and Internals.
Monday’s decline ignored multiple positive divergences among 3-minute RSI, resolving down instead of first bouncing above prior highs. This suggests the smart money is aware of bigger selling coming down the pipeline. It’s not a sell signal, but it does argue for selling bounces. Even the last-minute bounce failed to lure either RSI into overbought territory.

Tuesday’s opportunities.
The very late sideways ranging makes a break under 864’00 as possible as a bounce up to 872’00. But the very late sideways ranging also makes either likely to resolve in lower lows, targeting 853’50. A gap under 853’00 would likely trend down intraday 15 points to the 838’00 area. Several econ reports are due pre-open, and earnings reports are starting to dribble in, as well. There’s always potential for a bigger bounce, but at this time any bounce remains likely to resolve down in new lows.[/pay]