Trading Plan for 12/28

Snow day! Did Monday’s limited participation limit its recovery from extending into positive territory? Then it must also have limited the open’s selling pressure, too. Absorbing that selling pressure doesn’t seem so impressive.[pay]

Pattern points… (Setups and technicals)
Absorbing the open’s gap down doesn’t seem so impressive, not when considering that selling pressure was restrained. And there’s a difference between absorbing, and recovering.

Buyers had tunneled back up into positive territory above 1353.00 (circled green) for 2-1/2 hours before the close. But multiple probes above it failed to gain traction. Each recovery attempt was pushed back down to 1252.75. So, buyers were absorbed, too.

In fact, notice a pattern among the past three afternoons? Each day’s bounce *highlighted green) neutralized the earlier drop’s pent-up buying pressure. Gaining no traction, buyers weren’t rewarded for their efforts. Letting the drop’s pent-up buying pressure stew overnight would help it to explode higher the following morning. But impatient buyers couldn’t wait.

That buying pressure was sorely missed the following days Thursday and Monday. Tuesday may be different, at least initially, since Monday’s high re-filled the gap back to Wednesday’s open (boxed in green). It was unnecessary since Thursday’s open already did that. Any delay in reacting down Tuesday would require probing Wednesday night’s 1255.75 high.

What’s Next… (Outlook and opportunities)
Monday’s last productive pullback limit under 1253.00 was 1249.75. Its break Tuesday morning would signal momentum reversing down. Attractions would be a retest of Monday’s 1247.50 opening gap (circled red), its 1245.50 overnight low (dashed line), 1244.50 and 1242.00.

Gapping down to test 1249.75 could expend too much selling pressure too quickly, and may repeat Monday morning’s “recovery.” Filling the gap back to Monday’s 1253.25 close might produce some obligatory resistance.

Whether recovering from a gap down, or simply rallying at the open, eventually new highs above 1255.75 would be likely. [/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.