Trading Plan for 12/14

About that gap up to new highs… Its eventual retest by two higher highs was ultimately rejected by a late plunge to new lows. Sponsorship for this leg of the rally doesn’t seem up to the task. [pay]

Pattern points… (Setups and technicals)
1242.00 might have sufficed for the 1243.00 target. But 1242.00‘s test formed a close-quarters Double Top, and a Double Top at session highs is almost always retested. Wherever and whenever its sell-off were to end, the upleg that emerges should include a retest of 1242.00. And its retest would presumably test 1243.00.

The Double Top’s reaction down failed to hold its 161.8% 1238.50 target. But the extra selling was probably bullish. Its lower low down to 1235.25 neutralized the requirement to retest the morning’s oversold RSIs (circled red). And RSIs made higher lows (underlined greed) on the retest to suggest sellers did not gain traction for their efforts.

The oversold RSIs retest was likely to include a test Friday’s 1235.00 “lower prior highs” as support (chart inset). The pullback’s 1235.25 actual low could suffice. It was not a measured target like 1243.00. That said, it could be probed easily overnight down to 1233.00.

Many rules are appearing, and they’re all proving influential. The template of Friday breakouts not being confirmed on Monday ultimately prevented a new high close. The narrow range’s (mid-day triangle) first breakout attempt was almost imperceptible by being so shallow, but it proved false nonetheless. The morning’s oversold RSIs required a retest and got it. And the open’s dip to only within 1 tick of Friday’s late high later suffered for its excess optimism.

With this market honoring its rules, the unfinished business above at Monday morning’s 1243.00 bias-up target cannot be easily dismissed. Reacting down from a test of 1243.00 would not be easily dismissed, either.

What’s Next… (Outlook and opportunities)
Recovering 1237.50 should launch a retest of Monday’s 1242.00 highs, at least to 1243.00. Extending first down to 1233.00 would make 1235.50‘s recovery meaningful, but 1237.50‘s recovery would still be needed to signal momentum reversing up.

A bigger downleg would gain traction under 1230.00, signaled under 1227.00 and confirmed under 1223.50.

1233.00, 1237.00, and 1243.00 were the targets above 1223.00. Another close back under 1237.00 after probing above it – especially if 1243.00 were tested intraday – would suggest the rally’s gas tank had run dry. No unfinished business above would be dangerous with no weekend illiquidity impending that might inhibit counter-trend sponsorship. And plenty of unfinished business below to attract price down. [/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.