Trading Plan for 12/20

Friday’s expiration was relatively volatile, as expirations go. The flat close doesn’t hint that the morning probed repeatedly into negative territory, and the afternoon attacked prior highs. Just wait until expiration’s restraints come off after Monday morning. [pay]

Pattern points… (Setups and technicals)
Friday morning’s probes into negative territory were accumulation, as the afternoon’s rally proved. But a the rally’s single 3-point leg from 1238.00 to 1241.00 was not ample reward for recovering from repeated probes under 1235.50. Higher highs are still likely.

The afternoon’s narrow consolidation at 1241.00 eventually formed an Ascending Triangle. The pattern normally retraces its initial breakout to probe the pattern’s other end. The breakout down to 1237.50 was retraced fully into the cash session close at 1239.75. Meanwhile, the Ascending Triangle’s measurements indicate its recovery would target 1243.00-1243.50.

Expiration pushed futures back down to 1237.50 after Friday’s close. This is irrelevant, and should be rejected at Monday’s open. If anything, the post-close drop has pulled back the slingshot to retest prior highs.

Wednesday’s close had signaled no trending into and out of expiration. Its influence should still extend to Monday morning. The rally from 1230.00 to 1241.00 left a little on the table by not yet retesting the prior week’s 1242.50 highs. Having come so close might be considered pessimism, which is potentially bullish from a contrarian perspective, but it could have been due to expiration.

What’s Next… (Outlook and opportunities)
Expiration’s character usually persists into Monday morning. Friday tried unsuccessfully to trend, so another trending attempt Monday morning would likely fail. A morning probe of prior highs up to 1243.00 could even be rejected by entering the noon hour back under 1238.75. An initial drop could recover easily from 1233.00, perhaps even from 1230.00.

Neutralizing the 1243.00 unfinished business above and rejecting it back under 1238.75, with trending free to resume, would target a break under 1230.00. By the close. Trying to trend down first on Monday – as did Friday morning – could instead recover to rally significantly through the afternoon.[/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.