Trading Plan for 12/18

If the market wanted to form a durable bottom… then it should have probed fresh lows Monday before rallying. Ending Monday in rally mode was expected. Whether that would mean only another corrective bounce now seems clear.

Pattern points… (Setups and technicals)[pay]
There was no bearish reason to revisit last Monday’s 1417.25 gap up. Not through a relevant timing window, not unless the intent were to extend to last week’s 1432.50 high. It (1417.25) had been tested already late Thursday and pre-open Friday.

But 1417.25 was tested, and recovered. The 1428.00 pivotal high preceding last week’s 1432.50 high was almost touched — which would then require actually testing 1432.50.

Seems pretty bullish, and not an unexpected outcome following last week’s decline. The problem is that the rally developed without first probing fresh lows, like unfinished business below at 1404.25. That would have allowed the rally to target new highs.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Probing fresh lows Tuesday or Wednesday could still neutralize the attraction below in time for a bigger rally. But extending higher first would risk neutralizing any attraction above that might help to prevent fresh lows from recovering.[/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.