Trading Plan for 12/28

[pay]Pattern notes.
Thursday’s session conformed to the week’s pattern of gapping up, probing the prior session’s highs, closing positive but not above the open’s peak. Thursday was the first to develop exclusively above the prior session. Previous intraday lows had probed the prior session’s upper-end.

This optimism is usually excessive when it comes after multiple consecutive gaps up. Dec 14’s session was similar in this regard. It is circled green in the following chart, along with Thursday’s session. Notice from Dec 15’s action that the reaction can be immediate, but not necessarily final. (Even the final reaction after Dec 16’s retest wasn’t final.)

Low volume environments make counter-trend sponsorship almost impossible to form. Monday’s liquidity will improve, but not that much. Absent some negative news item (Friday’s airline terrorist attempt doesn’t qualify), a true test of the rally’s strength isn’t likely before Tuesday. A failed extension of the rally could start attracting sellers quickly. Meanwhile, intraday ranging can widen despite low volume, but no traction in either direction will be gained that way.

Indicators and Internals.
Overbought RSIs at Thursday’s opening high required its retest to the extent that anything can be required in a half-day’s session. Nevertheless, the pullback touched prior highs and recovered everything into the close. No other business was left outstanding.

Monday’s opportunities.
Lower prior highs can absorb immediate selling about 6 points down at 1115.50-1116.50. All price action above 1115.50-1116.50 has been the product of low volume. So, gapping down under it Monday would leave no unfinished business above that might inhibit a session-long decline. Not gapping down or maintaining a break under 1115.50-1116.50 would be likely to fill the gap back up to Thursday’s 1122.00 close.[/pay]