Trading Plan for 12/17
[pay]Pattern notes.
A 10-hour upward sloping channel, measuring no more than 7 points, offered no opportunity to fade or to buy a breakout attempt. That’s optimism. The immediate reactions were up, with pullbacks holding above prior lows. That’s also optimism. An even steeper surge entered an extended consolidation whose lowest point was far above prior highs before breaking higher again. More optimism.
Optimism can be productive, but not without paying a big price eventually. Dipping under prior lows or prior highs before recovering would trap sellers to refuel the rally. Tuesday afternoon’s rally didn’t do that, which means it was the product of impatient buyers being stretched thinly – not exactly leadership.
Obviously, optimism can be self-fulfilling. For awhile. And potentially a while longer in this instance. Tuesday’s close was attacking last week’s highs, reacting well to weighty news, with quadruple expiration just ahead. I don’t think this is the time to stand resolutely against even a slightly higher high.
If Wednesday’s close is higher after backing-and-filling intraday, a year-end rally might have squeezed through the crack in an otherwise already shut window. Simply screaming higher would only stretch buyers more thinly – perhaps all the way up to 933’00 or 940’00, extending the bounce, and running up a bigger bill in the process.
Indicators and Internals.
Spreads were very wide, and very lopsided – 17 times more NYSE up volume than down volume produced 6 times more advancing issues than decliners. Monday’s distributive internals were invalidated by Tuesday’s open gapping up above prior highs. Tuesday’s internals can’t be invalidated. They don’t require a pullback, and only reveal how stretched buyers already are.
Wednesday’s opportunities.
The late consolidation stopped short of closing above 913’25. That would have triggered an interesting short-squeeze opportunity, and above 916’00 would have surged to 922’00. Above 916’00 Wednesday morning would still put into play 922’00. Either of these are still valid resistance overnight, but don’t require being tested. Their tests would be capable of reversing the trend back down, unless their tests come after backing-and-filling first – perhaps to 899’50, 902’00 or 895’00. Any lower starts to give sellers traction for a more substantial drop. [/pay]