Trading Plan for 12/31

One perpetual “benefit of the doubt” gave buyers a pass Thursday. Not that buyers did anything substantial intraday. But bigger selling pressure would have broken support when and where it could have mattered. Bullish hopes – near-term – depend upon sellers not making a more serious effort Friday. [pay]

Pattern points… (Setups and technicals)
Thursday’s selling tested a lot of relevant support. It broke some relevant support, too. But all tests recovered through a relevant timing window. Sellers never gained traction. That gave a benefit of the doubt to recovering.

Of course, buyers never recovered a relevant level, either – not through a relevant timing window. But the burden of proof was not on them since the open gapped down, not up.

A late short-squeeze could have rallied to new session highs. But the only  squeeze-like activity came well past the 3:10-3:20 window. And its surge to fresh session highs ended almost immediately, and was retraced almost as quickly, after taking RSIs to overbought.

Sellers tried – not their best, but they tried – and failed to gain traction by closing under prior lows. It’s not a buy signal, but it is potentially bullish. Triggering that potential at the following open is the surest way to realize it. Delaying an obvious recovery attempt would let sellers try again.

What’s Next… (Outlook and opportunities)
At least 1254.00 was being tested as support into the close. Recovering it earlier Thursday would have been much more productive intraday. Overbought RSIs at the late 1255.75 high are likely to be retested, which would help to launch a more serious rally effort.

The most bearish scenario would test Wednesday’s 1258.50 prior highs. There’s also unfinished business above at 1259.25 and 1261.25. Neutralizing these higher attractions while retesting Wednesday’s reversal pattern would form a bearish Double Top.[/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.