Trading Plan for 1/19

[pay]At the close (How the prior session ended)
Friday’s close was bouncing off of the 1127.50 session lows. This tracked the reaction upleg defined in the “cave drawing” I had posted here. Back under 1131.00 would have retraced the bounce, a threat made by RSIs diverging negatively into Friday’s close.

1131.00 wasn’t tested until Sunday night’s opening dip. The test held and the bounce resumed up to 1137.00 through Monday morning’s Globex close (highlighted green on the top chart).

The cave drawing’s Complex Triangle probably wasn’t still an influence Sunday night. Bigger patterns have formed over longer time frames. Even if the Triangle’s reaction up remained influential beyond Friday’s close, the follow-through since then has either fulfilled or neutralized it.

Pattern points (And technical influences)
Friday’s low held a test of Tuesday’s prior low, whose dip had tested the prior Monday’s breakout highs (highlighted green on the second chart). Tuesday’s complete retracement already undermines the breakout’s integrity; Friday’s redundant test (highlighted red) has now chipped away at its support.

Revisiting chipped away support on normal volume would be likely to break lower. But the three-day holiday Globex session was low-volume, so it produced the opposite reaction and rallied. Trending up on low-volume reflects optimism. Then there is last week’s repeated avoidance at testing the 1126.50 lower prior highs (red dashed line). The narrow margin also reflects optimism.

The optimism is helpful to a rally, until it becomes excessive optimism. Then the optimism stops attracting more buyers, and starts to drain buying pressure by avoiding a dip. The rally’s most important ally is momentum, and perhaps the attraction back up to the 1148.00 Globex high (annotated on the first chart). Its intraday retest at some point is almost historically mandated – but no time soon if 1126.50 gives way as support.

Bottom line (My underlying premise)
The holiday Globex bounce greets Monday night’s Globex open at interesting levels. It isn’t yet above resistance, but its indicated position (blue dashed line) is not part of the low’s structure, so it isn’t necessarily attracted by the low’s gravitational pull. Remaining aloft through Tuesday’s open would mean optimism remains alive and well.

This week’s news flow can get heavy, especially combined with quarterly and annual earnings reports. The 1148.00 Globex high’s retest is likelier than a downleg, unless/until there is a break to fresh lows. The high’s retest is also likely to produce a durable top that does launch a sizable downleg. Every positive reaction to news would bring that turn nearer. [/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.