Trading Plan for 12/30

[pay]Pattern notes.
Monday’s price action seemed to have reasserted the template that was interrupted by noise Friday afternoon. That morning’s gap up had retraced back to Wednesday’s prior close where prices remained through the noon hour.

A normal day would have extended the morning’s retracement that afternoon by a factor of 2-3 times. But holiday illiquidity returned only noise as the morning’s range persisted into the close. The normal template includes a second-to-last hour bounce that resolves down sharply, and Monday’s second-to last hour bounce seemed to back in the template’s groove.

The bounce should have peaked at either 859’00 or 864’00. It peaked at both. First at 859’00 where technicals had already stopped improving. Then an oddly-timed surge up to 864’00 offered the possibility that sellers were doing extra refueling, preparing for an extra-long trip.

That would have been the case, but for a very last-minute surge up to 871’00that momentarily probed Friday’s highs. This is ineffectual optimism, and it’s still the fourth inside day within Monday’s range, but it doesn’t preclude Tuesday’s open from attempting higher highs. Perhaps I’ll get the opportunity to sell 874’00-875’25 after all. This would give 874’00-875’25 the opportunity to break higher, targeting 883’00 and potentially 892’00.

Indicators and Internals.
S&Ps have firmed slightly so far after hours, adding nearly 2 points up to 873’00. This is actually the second test of 873’00, and also the second time technicals diverged negatively here. Back under 869’50 overnight might already retrace the rest of Monday’s last-minute 7-point surge before the next session has even opened.

Tuesday’s opportunities.
Monday I was obviously overly-selective among trading opportunities, and in-turn surprised by the market’s reaction. The opening 15 minutes of volatility were anything but, so the next 15 minutes of plunging squeaked through my timing windows before an entry could be determined. And the afternoon’s positive divergence was limited to the 1-minute MACD & RSI, so the bounce should have been limited, as well. It wasn’t.
The upside to being selective is the downside is often avoided. The downside is that often the upside is avoided, too.

Sessions that get away like Monday’s did are often followed immediately by sessions that also reward for fast action. Modest initial strength Tuesday might extend to far to wait for the opening sequence’s official signal, far enough to already reverse short. Early weakness might be crushed under its own weight, quickly retracing the last-minute7-point surge and then some.

Retail sales due pre-open are expected to be depressing, and Consumer Confidence at 10:00 could be very interesting. Wednesday and Friday are full days, although Thursday’s one-day interruption could inhibit volatility Wednesday afternoon. Natural forces of supply and demand remain extraordinarily vulnerable to holiday-hampered volume and year-end influences.

Don’t forget to add any stock request to the blog post linked here, and I’ll review it Thursday morning.[/pay]