Trading Plan for 1/25

If this rally is so strong… then how could Thursday’s intraday new highs have failed to close above prior highs? It doesn’t qualify as a sell signal, but it suggests that the rally’s momentum is waning.

Pattern points… (Setups and technicals)
Thursday’s test of the 1497.25 target proved its relevance in three ways. First, by attracting price 10-1/2 points higher so quickly after the open. Second, by reacting down 11-1/2 points from its test. And third, by leaving oversold RSIs at the reaction’s 1486.25 low, requiring its eventual retest.

The bounce from 1486.25 retraced 61.8% back up to the morning’s 1497.25 target. Bouncing above this natural resistance would have resumed the rally, next targeting 1503.00 and potentially 1512.75. Or, I should say, finally targeting.

But the bounce failed, and closed back under Wednesday’s 1491.00 highs. It was too late and too shallow to signal momentum reversing down, but that’s not the issue. More relevant was that Thursday’s test of the 1497.25 target had not generated sponsorship to close above prior highs.

What’s Next… (Outlook and opportunities)
Since momentum hasn’t reversed down, fresh highs could still test 1503.00 and potentially 1512.75. Neither test is required before reversing down. And neither test would require reversing down. Any rally effort Friday will get a benefit of the doubt until disproved. So, if this rally is ending, then any attempt at fresh highs should be disproved, by avoiding a new high close on a Friday.

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.