Trading Plan for 12/15

[pay]Pattern notes.
Friday’s drop was saved by the open’s ability to quickly recover above 850’00. This line in the sand was defined by overnight lows, and although it held a touch as resistance during the first minute, its recovery three minutes later never looked back. Having held 850’000 as support, buyers finished absorbing fallout from the bailout bill and the Madoff scandal.

The weekend’s impending illiquidity could have cut either way, and it would have cut the other way, had the open not immediately recovered 850’00. That other way was a path to retest the overnight low’s “new Globex trend extreme” at 828’75, which was itself a path to retest the prior week’s lows at 813’00. And there’s no reason to retest the prior week’s lows unless the entire Thanksgiving rally were unwinding.

It’s not that gapping down 25 points from Thursday’s close expended too much energy for following-through. It’s that gapping down 38.2% of the way back to Thursday’s close robbed sellers of too much traction for following-through. That was near enough to Thursday’s close for its retest to be more attractive. For now. Friday’s recovery was enabled by the weekend’s impending illiquidity, and that couldn’t be less relevant now.

When the weekend’s illiquidity was just minutes away, the focus was on a probe of new session highs. The probe failed, but not enough to undercut the optimism that was holding up prices. So optimism also goosed S&P futures an additional 5 points after the cash session close. The sentiment may live through the weekend to gap up Monday’s open back towards last week’s highs. Some degree of follow-through would be likely, but it may be too late for this to evolve into a Santa Claus rally. Santa might have other plans.

Indicators and Internals.
The Friday Factor triggers rarely, but it forms when both the first and last 15-minute windows are biased in the same direction as each other. Friday’s were both biased up, which makes Monday’s first 15 minutes likely to repeat. Monday’s open could gap down, but a comparison 15 minutes is likely to reflect an upward bias. A gap down could bounce from 878’50 where the cash session closed, back up to the last print at 884’75. Or a gap up could probe last week’s range optimistically, and then lose traction. The setup’s point is to undermine initial sentiment as being extreme.

Monday’s opportunities.
Almost any attempt to resume Friday’s pre-open decline would get a benefit of the doubt. Two outstanding objectives are to retest the open’s gap down to 849’00 and the overnight low at 828’75. Under 876’50, confirmed under 871’50, would signal a move underway down to these levels.

Friday’s optimism might extend higher to 898’00, but buyers start gaining traction above 900’00, and above 906’00 almost triggers a new rally leg up to 933’00 and 940’00.

I don’t expect Tuesday afternoon’s FOMC decision to influence Monday’s price action much. Especially most of the air in the room is being sucked out by the potential for massive bankruptcy filings by automakers. Monday’s econ calendar isn’t very light anyway.[/pay]