Trading Plan for 12/13

Objects in motion, and all that… Friday’s open kept optimism in-check. It is difficult to generate counter-trend sponsorship on a Friday afternoon. The session firmed to new highs, not by accumulation, but by slow-playing its gains. [pay]

Pattern points… (Setups and technicals)
Thursday night’s retest of 1233.00 pushed back down into Friday’s open. Thursday’s test of 1233.00 had done the same. Both morning dips were absorbed (circled red). And each recovered to fresh highs. Similar characteristics between Thursday and Friday’s session make one an extension of the other.

A breakout is new trending that leaves a consolidation behind. If Friday’s new high was an extension of Thursday’s price action, then it cannot also be a breakout. Anyway, a breakout’s volume should increase, sharply, which Friday’s volume did not. The final proof will be in whether Monday closes higher to confirm, which it should not.

That’s just timing, and doesn’t equate to being a sell signal. But one could be signaled from rejecting a fresh high at 1238.00. Or a gap down under Friday morning’s 1227.00-1229.00 lows could invalidate the breakout and reverse momentum down in the same breath.

If Monday’s session avoids reversing down, Tuesday could still extend higher. The left chart below depicts S&Ps for three weeks, including overnight Globex action (81-minute bars). Last week formed a Rising Wedge in an uptrend. This pattern tends to resolve by surging higher – a final upleg, but a pretty aggressive when its starts.

The right chart depicts the same price action not including overnight Globex. It no longer forms a wedge, but an Ascending Triangle. And Friday’s high is a 38.2% extension of the pattern. Reacting down immediately from touching 1239.00-1240.00 would leave no unfinished business above. And it would suggest no wedge had formed.

What’s Next… (Outlook and opportunities)
Initial weakness that isn’t breaking under 1230.00 would be likely to recover. Perhaps not to resume the rally, but to probe Friday’s highs. Fresh highs would be vulnerable to reversing down from the 1238.00-1240.00 area. From where specifically, and how far down, would determine the next leg – slightly higher then slightly lower would suggest another rally effort coming Tuesday. Otherwise, surging at Monday’s open would get a benefit of the doubt for being a breakout of the Rising Wedge. [/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.