Trading Plan for 11/30

[pay]Pattern notes.
The weekend edition of Trading Plan doesn’t address the bigger picture until first dissecting Friday’s price action. But Friday’s price action is the bigger picture. Nov 19-20’s drop had tested the prior week’s lows, and the test had held those lows in such a way that predicted a bounce back to the highs. That same setup had predicted the bounce would fail. And not just fail to extend higher, but then produce a new downleg.

This first chart puts Friday’s session into a perspective. Not the perspective – a perspective that reveals what just happened in a way that can tell us what may happen next.

The yellow highlighted area identifies the two-week trading range. The gaps and their follow-through within the range reflect both disagreement and agreement. A widely agreed to valuation range has contained sudden shifts in perception. Friday’s gap down was a shock, but it wasn’t out of the ordinary. The probe under the range was new. The lower-end of the range had already been tested and retested to establish it as valid support. A third test was overkill.

This second chart shows the range only. The pink highlight is the range’s 1086.00 lower-end whose redundant testing already established it as support. Friday’s test ultimately held again. A lot of buying pressure was expended in the process, but it wasn’t productive. Friday’s buying pressure was expended by testing the 1095.00 dividing line, highlighted red.

Prior dips left pent-up buying pressure to produce a “recovery” to the range’s upper-end. This dip left outstanding Friday’s opening gap down at 1078.75 to attract price lower. There’s also a gap outstanding back up to Wednesday’s 1109.00 close, but its retest isn’t required since Friday’s open gapped down under Wednesday’s lows. It could still be attacked, as shown in the next chart.

Let’s take another look at the same range, while also including Globex action. The third chart includes Thanksgiving’s plunge down to 1082.75. Friday’s opening gap down to 1078.75 wasn’t the plunge, after all. It is circled red on the chart, and its eventual retest all but assures yet another probe under the range’s lower-end. Another probe would put into play a retest of the 1067.00 overnight low. Failing to hold support there would confirm a downleg is underway.

That’s actually the bullish scenario – get on with retesting Friday’s lows, before another round of impatient buying. The bearish scenario would rally first. More important than filling the gap back up to 1109.00, is to retrace 61.8% of the trading range at 1101.00 (circled blue). A close above 1102.25 would suggest that buyers were gaining traction, confirmed above 1107.75. Rejecting the bounce in order to close back under 1095.00 would put into play a retest of Friday’s lows, on the way to much lower lows.

Regardless of the next leg’s direction, its slope is likely to be steep and its production substantial. No longer able to appear suddenly after ranging sideways for so long, the next leg is also likely to last for some time.

Indicators and Internals.
RSIs were simultaneously overbought at Friday’s 11:00am high. They weren’t improving, and they were no more overbought than they were oversold at the 2:45am low. The abbreviated session undermines the 11:00am timing’s credibility. So, there isn’t really any unfinished technical business in either direction.

Monday’s opportunities.
The econ calendar isn’t busy, but an item is due after the open. Unless the open is gapping down under 1086.00 on the way to 1078.75, a test of 1101.00 is likely. Failing to extend it higher by 11:30 could see the decline resuming in the afternoon. Gapping down under a relevant price level without gaining traction through a relevant timing window would stand up against the odds and suggest yet another attack on fresh highs is coming by week’s end.[/pay]