Trading Plan for 12/23
[pay]Pattern notes.
Monday’s low barely had time to probe the 853’30 target before recovering the 856’25 bounce limit that ended sellers’ run. A squeeze took S&Ps up to 869’00 by the cash session’s close, and nearly 4 points higher afterwards.
The very last opportunity for sellers to have lost traction was the 3:30-3:35 window. Recovering the bounce limit any later would have been likely to resolve the session at new lows – or else gap down to new lows Tuesday. Monday’s last bounce limit was recovered one minute later, but that didn’t matter to the recovery that was already ten minutes old.
However, it does matter to the recovery’s durability. The timing of its origin makes it likely to be retested. The amount of recovery stopped at the last downleg’s origin, which is a common bounce peak. But the retraced distance was compressed into so short a time frame that its relatively steep slope reflects excessive optimism. A gap up to higher highs Tuesday would lessen this problem – a flat to lower open might still extend a little higher, but probably not for long before trekking back toward Monday’s low.
If a decline had wanted to appear this week, then it needed to get underway Monday. The question now is whether the decline has already played itself out. There are two recent recent reasons to retrace Monday’s last-minute recovery: its aggressive slope, and the outstanding objective at 849’00 that was barely missed at the low. They should soon be back in-play so long as 872’00 and 875’00 aren’t recovered through Tuesday’s open.
Indicators and Internals.
Monday’s technicals left no required retest outstanding. Internal spreads were lopsided with sellers producing fewer declining issues relative to down volume. But the sizable last-minute recovery might have already rewarded buyers for their relative productivity.
Tuesday’s opportunities.
The holiday-shortened week has forced the usual econ calendar to reveal itself through only a few narrow windows. Tuesday morning finds four items each at 8:30 and at 10:00. Plenty of opportunity for volatility, and for triggering an opening gap. Wednesday’s calendar isn’t much less crowded considering the session’s early close, and that might help to keep things interesting Tuesday afternoon.[/pay]