Trading Plan for 1/21

Good news, bad news: GOOG announced. If a rally is relying on good news to avoid a drop, then how bullish can it be to get that good news out of the way? The stock is holding its own, but its effect on indexes has been negligible. [pay]

Pattern points… (Setups and technicals)
Thursday afternoon’s 1275.00 bias-up signal didn’t trigger at 1:20. Trending would be unlikely through 2:30. Any trending attempted anyway must be retraced. So, Thursday afternoon’s no-bias rally up to 1280.00 was  retraced back to the 1275.00 bias-up signal. It was also retraced down to 1274.00 where price traded at 1:20.

A similar story preceded that one 3 hours earlier at the 1267.50 session low. It was the product of miniature Head & Shoulders (circled red), too small to be confident even now that it wasn’t just noise. But it was symmetrical, and its measurements targeted 1267.75. And the pattern’s normal resolution is to reverse substantially from its target. Check, check, check.

These little stories are similar because each depicts a target being met soon after it was created. That’s interesting because the morning’s low had just neutralized targets that had been outstanding longer. If any lower targets were still in-play, then the newer ones should have broken.

It’s possible that Thursday afternoon’s rally refueled sellers anyway, creating a new target much lower. Already neutralizing the 1274.00-1275.00 attraction – and only it – suggests otherwise. So does the session’s “ineffectual pessimism” (gapping down, probing prior lows, ranging exclusively in negative territory, but closing above the prior low).

It’s possible that Thursday afternoon’s rally refueled sellers anyway, because they gained no traction for their efforts. They did expend a lot of effort. But the probe above Wednesday’s 1280.00 late high held as resistance. Recovering it would have marginalized sellers.

And It’s possible that Thursday afternoon’s rally refueled sellers anyway, since Wednesday’s trend change signal was confirmed. Failing to close back above Tuesday’s 1286.50 low means the latest rally leg is done.

What’s Next… (Outlook and opportunities)
The trend change signal does give cover for a corrective bounce to refuel sellers. Two likely objectives are 1283.00 and 1289.00. An opening dip to 1274.00 could still recover for the bounce. But breaking under it overnight could gain traction to trend down sharply into and out of the weekend. Next lower targets would be 1257.00 and 1241.00.[/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.