Trading Plan for 12/4
If Monday’s reversal intends to develop into a downleg… then why did the afternoon bias environment’s 1408.75 low not break convincingly? It was not for lack of trying — sellers did close under it, even after a dip down to 1406.50 had reacted back to 1411.00. Still not trending down through Tuesday’s open would at least require fresh highs intraday.
Pattern points… (Setups and technicals)[pay]
I characterize Monday’s upside in this way: initial optimism rewarded Friday’s buyers. I characterize Monday’s downside in this way: Monday’s initial sentiment often fails. As warned, Friday’s buyers had gained no traction for probing away at 1416.00 resistance. So, sponsorship disappeared after fulfilling the obligatory fresh high.
As if there was any question, closing back under Friday’s 1410.00 lows then confirmed buyers were weak hands. But are sellers much stronger?
Or, asked another way, are sellers also impatient? Notice that I don’t characterize Monday’s downside as a new downleg. It was only a reaction to the initial rally attempt.
Despite the opening strength’s failure being so predictable, there is nevertheless a gap outstanding back up to Monday’s 1421.50 open. It is a fresh high, and it hasn’t been retested since dipping back under prior highs. There’s also the pre-open 1424.00 “new Globex trend extreme” that requires a retest intraday.
Neither is a deal-killer for a productive downleg to begin. In fact, Monday’s close triggered a hold-short under 1408.00-1408.75. It wasn’t optimal, and it can be rejected after recovering from 1404.50 overnight (1404.25 was touched after the close). But 1412.75 and 1416.75 must be recovered to signal momentum actually reversing up.
[/pay]What’s Next… (Outlook and opportunities)[pay]
We’ve been hearing about the fiscal cliff “offers” being no more than posturing for their bases before party leaders compromise on a deal. Perhaps the strategy is to keep moving so far apart that they go full circle and back into each other. I don’t expect a deal at this time, around these levels, or at this stage of this pattern. Instead, keep looking for knee-jerk reactions to headlines only.[/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.