Trading Plan for 1/22

[pay]At the close (How the prior session ended)
The 1112.00-1116.00 range defined Thursday’s last hour. The market had not trended into this channel, and there was no unfinished business above or below. There was eventually a drop to 1110.25, but it started too late to qualify as a breakout. It happened to come after the cash session close, but any trending begun after 3:30 is possibly noise.

The Globex open gapped down a couple of ticks and extended to 1108.50. And still the fresh low might just be noise. Its break might deserve a benefit of the doubt, but only so long as overnight action deteriorates further.

The decline’s momentum would be suspicious enough if Friday’s open doesn’t immediately extend Thursday’s late break / Globex gap. Gapping up above 1116.00 would reject the fresh lows, triggering a corrective bounce into the afternoon.

Pattern points (And technical influences)
The above chart shows the market’s round-trip since year-end. The breakout’s resolution isn’t surprising – its eventual failure was predicted by the breakout session’s inferiority. What’s surprising is that the Triple Top wasn’t probed first, if only for an intraday retest of the 1148.00 Globex high.

Wednesday’s gap down was useful to get away from the highs. Combined with the Thursday’s steep, deep drop, and shallow interim bounce, a lot of selling pressure has been expended without much refueling sellers. That selling pressure may be sorely missed with the decline’s low already filling a gap.

Waning sponsorship is replaced by stronger sponsorship. But that new sponsorship could be in the same direction. We’ll know it is if Friday’s open gaps and/or extends down sharply. The next lower target coincides with the last concerted selling effort that consolidated under 1098.00.

Extending below there would be only a formality. The extensive six-week trading range (highlighted yellow in the second chart) looks like strong support, but it isn’t. And there is plenty of other unfinished business below. The post-Thanksgiving opening gap, the early-November gap up… This rally has long sustained itself by trapping shorts, and it has racked up quite a bill to pay.

Bottom line (My underlying premise)
If Friday’s open isn’t gapping down, then it’s probably already bouncing to refuel sellers. If Friday’s opening gap down doesn’t quickly extend before probing above Thursday’s lows, then a bounce is probably forming. Perhaps it can reach “higher prior lows” up to 1126.00. The bigger question is whether it can last much past the noon hour before resuming the decline. If there’s a bounce, at all. [/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.