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Trading Plan for 1/20 – If, Then… Market Timing

Trading Plan for 1/20

By Rod David | January 19, 2011 - 6:37 pm

Dead cats and fingers lying everywhere. There were only two falling knives to catch Wednesday. Once coming out of the noon hour, and again during the last hour. The first measured 4 points, and it failed. The second measured 5 points, and it hasn’t failed. Not.yet.[pay]

Pattern points… (Setups and technicals)
Wednesday’s selling was relentless. o bounce probed a prior high to refuel sellers. This was surprising since the open’s gap down didn’t immediately slide lower. The gap to Tuesday’s 1289.50 last relative low would normally set the tone for the day. es_011911.gifThe balance of the session performed as if the gap had immediately slid further.

So, maybe that was excessive pessimism Wednesday. Not that selling wasn’t productive – it was. But everything available for sale near-term might have been sold already. Wednesday’s close signaled a trend change, but I’m skeptical.

A trend change is signaled by closing back under the highest relative low. Tuesday’s 1286.50 low was the highest relative low (circled red) – the intraday low between the two highest closes (circled green). Closing just under it would have been bearish. Closing just above the next relative low (also circled red) would have been bearish. But Tuesday’s probe of that low lacked the energy to close below it.

What’s Next… (Outlook and opportunities)
An early recovery from retesting the 1276.00 area’s support would help to launch a corrective bounce. Its minimum target would be 1289.00, but it could probe 1291.25 or 1295.00.

Recovering 1283.00 could also extend to the same bounce targets. Testing 1283.00 too early would leave plenty of time for reversing back down – as in, resuming the decline.

Resuming the decline would next target the 1270.00 area. Wednesday’s drop has already expended a lot of selling pressure without refueling. Its 1276.00 low is already extreme. Gapping down to 1270.00 snap back up very sharply if not extended down immediately.[/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.

Posted in Market Wrap, S&P