Trading Plan for 1/21
If the New Year’s Eve retest isn’t probed soon… then its eventual retest could take the form of a new, durable rally leg. Test it sooner, rather than later, and more durable top could form.
Pattern points… (Setups and technicals)[pay]
If WedEX had any bullish influence Friday, it was to hold a test of Tuesday’s “lower prior highs” (boxed in blue). Even that success is marginal, since the close didn’t recover decisively. But it’s enough to be prepared for a more obvious bullish influence the following morning on Tuesday — whether that is to retest Friday’s low down to 1827.00 before rallying, or simply opening through 1836.50-1838.00 and extending higher.
Probing Friday’s low but not recovering would next target 1818.00-1819.50 (follow the red arrow). Even that wouldn’t be bearish, not without also closing under 1821.50 (red line). That would break free from the highs and their retest, and become attracted back down to the much older “lower prior highs” that Tuesday’s drop had been on its way to testing.
Extending the pullback any deeper shouldn’t be necessary before recovering to new highs. Recovering from an extended pullback won’t be likely if extended too deeply and for too long.
Meanwhile, the above comparison among major indexes suggests that sellers aren’t yet retaking control. While S&Ps recovered back to prior highs, the Dow underperformed, which suggests that bigger money isn’t focusing on safer stocks. NDX outperformed by probing new highs, which suggests that speculative fervor hasn’t yet died. It’s not a buy signal, but it does keep the burden of proof on bears.
[/pay]What’s Next… (Outlook and opportunities)[pay]
This being a holiday weekend, there is no Saturday Strategy Session. Friday’s Market Wrap was extended to discuss the bigger picture, those items discussed above and others. Futures do re-open normally Sunday night, so the Chartroom will be open. I’ll update on anything relevant. [/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.