Trading Plan for 12/30
If the rally was going to extend above Thursday’s resistance… then flat-to-lower ranging Friday was needed to refuel buyers. Even a deeper downdraft would have helped to renew the rally. Of two opportunities for a deeper downdraft, one was steep and shallow, while the other was delayed and brief.
Pattern points… (Setups and technicals)[pay]
Thursday’s close failed to exceed 1836.00 which prevented putting into play higher targets at 1856.50 and potentially 1869.00. Thursday’s last hour was entered under the afternoon’s bias environment high which failed to keep optimism inflated. Neither of which indicated momentum reversing down, especially with unfinished business left outstanding above.
Unfinished business which Friday’s open neutralized, and failed to exceed through a relevant timing window. Again, none of which was bearish.
A drop Friday wasn’t going to be the product of a bearish environment. Dropping Friday would be bullish, at least bullish enough for its recovery to produce fresh highs. Not dropping would be bearish, for stretching the rally too thinly — too far, for too long, too high, and too soon as described in the pre-open First Trade blog post.
So, if not dropping would have been bearish, then only a shallow drop isn’t very bullish. Especially on a Friday, during a holiday-shortened week, when a deeper drop could have trapped weak-handed shorts. The rally missed an opportunity to refuel, which durable rallies rarely fail to do. That doesn’t prevent extending higher, but it suggests that any extension higher will fail miserably if not preceded by a deeper dip.
[/pay]What’s Next… (Outlook and opportunities)[pay]
Friday’s relatively flat close could be considered as the second non-consecutive countertrend session of the past nine. Two more consecutive higher closes would form an Up-Down Crash setup, which often resolves sharply in one direction or the other. Just one more higher close Monday would suffice for making Tuesday’s year-end session vulnerable to beginning a deeper retracement… Don’t forget there is NO weekend Strategy Session this week or next, but we will have one intraday Monday (time will be announced Monday).[/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.