Trading Plan for 12/12

If two days of ranging had been followed by a third… then volatility might have remained dead through Christmas. Wednesday’s slide made up for lost time. Pessimism at Monday’s high may have delayed the reaction down, but breaking free from its orbit at Wednesday’s open had plenty of time to launch.

Pattern points… (Setups and technicals)[pay]
Despite triggering late, Wednesday afternoon’s 1782.25 bias-down target was met. Closing back above it would have suggested its sellers may not be strong hands. Meanwhile, Wednesday’s 1779.25 low probed last Thursday afternoon’s late low, also 1782.25. Closing decisively under 1782.25 would have suggested the trend remains down.

A bounce into the close went out testing 1782.25. No hold-short could be considered, and it was too late in the session to consider a long. That’s not to say a bounce or further decline isn’t possible, only that the odds aren’t overwhelming in either direction.

Wednesday’s decline expended a lot of selling pressure. But sellers gained traction for their efforts by closing under the noon hour and bias environment lows. They also damaged the rally’s chart by filling the gap back to the last low close, without closing back above it.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday’s late 10-point drop can be retraced up to 1780.75 basis Mar (1787.00 basis Dec) before beginning to suggest momentum may be reversing up. Recovering 1783.75 basis Mar (1790.00 basis Dec) through Thursday’s open would actually reverse momentum up, probably through the weekend. Otherwise, the decline is free to extend without further delay.[/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.