Trading Plan for 12/19

Friday’s overnight rally seemed… a bit bullish. Friday’s gap up seemed bullish, too. But the market’s bearish context is just that — not preventing rallies, but dictating their resolution.

Pattern points… (Setups and technicals)[pay]
Several factors continue to make the current trading range likely to resolve down. The most interesting is Wednesday’s Expiration Indicator, which suggested that strong hands were distributing into the weekend. Thursday and Friday’s gaps up would have suggested otherwise, had they been maintained or extended up. But they were retraced.

Friday’s lows, relative to Thursday’s lows, also make the current range likely to resolve down. Each session bottomed in the 1208.00-1209.00 area. Repeatedly. Perhaps the area could have launched a durable rally after Thursday’s testing, perhaps even after a retest Friday. But Friday’s repeated retests through multiple timing windows has only chipped away at the area’s support.

Finally, a unique expiration characteristic also points downward, if only because it restricts the upside. Mondays following expiration tend to duplicate Friday’s behavior. And Friday’s behavior was biased down.

So long as Monday’s session doesn’t rally from its opening print, new lows remain likely — whether to test last week’s 1298.00 low, or to trend lower. Gapping up would still be vulnerable to trending down, but only to test prior lows.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Don’t forget about Saturday’s Strategy Session at 9:30am ET. Its link is in the blog’s sidebar.[/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.