Trading Plan for 1/25
[pay]At the close (How the prior session ended)
Friday’s last hour dive was phenomenal. The substantial 10-point drop essentially produced half of the session’s loss. But that only added insult to injury. The morning’s failure to recapture positive territory after probing new lows action had already shut the door on a recovery. And an ugly last hour was already predicted by the afternoon’s series of lower and lower lows that ignored a stream of otherwise bullish setups.
The cash session’s last 15 minutes developed entirely under prior lows. Futures bounced after close, but didn’t recover any relevant level. Indeed, the late bounce’s only accomplishment seems to be having off-set the low’s oversold condition. But RSIs were oversold at the low, making its retest likely.
Pattern points (And technical influences)
Apart from Friday’s last-minute optimism, plenty of the drop’s characteristics were pessimistic: Wednesday’s opening gap down is obvious, as is Thursday’s steep and deep post-open slide. There was also no corrective bounce that probed a prior high.
The important question is whether this pessimism qualifies as yet being excessive, because that could make the difference in near-term direction. Excessive pessimism depends upon whether Friday’s low probed a prior relative low, and then whether Friday’s close recovered back of it.
This portion of the downleg was targeting the Dec 17-18 consolidation. Its minimum objective was to probe that range’s upper-end, whose proxy I calculated as 1095.50. Closing any lower would signal the drop’s intention to extend by a multiple of the drop’s measurement to-date.
Essentially all of Friday’s last hour can be characterized as a drop through 1095.50, and its break wasn’t recovered through the close. But the decline extended to probe Dec 17-18’s low, which futures closed back above. However, unlike futures, S&P Cash (SPX) isn’t skewed by five weeks of time decay. The above chart shows how SPX broke decisively lower, in contrast to S&P futures.
If pessimism did become excessive, then Friday’s bearish close under 1095.50 will be invalidated by recovering the last relative high. This means either gapping up above 1102.00 or recovering it through the close. Its resistance can be probed intraday. But the probe would only refuel sellers if 1102.00 isn’t gapped through, or closed above.
Sunday night or Monday’s open can first probe under Friday’s 1086.25 low and still recover intraday for a corrective bounce up to 1107.00. But be careful not to assume that a shallow opening bounce or dip can attract the same “relief rally” buyers that have been sustaining the uptrend.
Bottom line (My underlying premise)
Friday’s loss confirmed Thursday’s close under Dec 31’s prior low. The trend has reversed down. Regardless of whether the decline is delayed, the bigger picture points down sharply to 988.00-991.00. A corrective bounce might target only 1107.00, or perhaps even new highs that retest the 1148.00 (1048.00) Globex high, filling the gap back to Wednesday’s close. But a bounce would be only corrective. And the hopes of bouncing at all will dim greatly if not underway soon after Monday’s open. [/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.