Trading Plan for 1/26

[pay]Pattern notes.
Last week was one day short, but that was long enough to establish a new tradition of last-minute moves (highlights on the nearby chart). Perhaps the first instance was Tuesday’s 4:00pm dip and bounce. This was followed by Wednesday’s 10:27am sudden slide reversing a gap up back down to Tuesday’s low. Thursday’s opening gap down waited equally long before finally resuming its drop.

Friday’s close kept with tradition by dropping sharply at 3:58pm. With 2 minutes remaining in the session, the last hour’s consolidation around and above 825’00 had firmed back to the 831’25 bounce target. So it seemed unlikely that 825’00 would hold. But the last-minute drop finished under it.

This difference of only several points may not seem very relevant – that would be the case if Monday’s open gaps up 10 points. Since Thursday’s open and close under 825’00 had prevented buyers from gaining traction, so does Friday’s open and close under 825’00. But no more of this last-minute tradition thing, okay?

Another tradition created last week that’s soon to end is the inside day. Wednesday’s session ranged within Tuesday’s, and Thursday’s session ranged within both, as did Friday’s, and volume declined throughout. Basing would have probed lower lows intraday and recovered. This is not basing. Lower lows have not been probed during regular trading hours, creating unfinished business below, which meanwhile inhibits rally attempts and attracts price down.

Indicators and Internals.
3-minute RSI diverged negatively into Friday afternoon’s highs. The eventual 15-point drop fell back into the mid-day consolidation, but retraced only 38.2% of it. That’s not pessimistic enough to reflect the negative divergence that produced it. Unless rejected immediately Monday by gapping back to the high, the reaction hasn’t ended.

Monday’s opportunities.
This is one of the few Monday’s whose economic calendar actually has items on it. They’re both at 10:00 – Home Sales and LEI – timing that tends either to accelerate or to reverse any initial trading underway. There’s an FOMC interest rate announcement Wednesday that might seem too far off to matter already, but Monday’s data could inform it.

If Monday’s open isn’t gapping down under 819’00, then it is probably gapping up into a detour with potential up to 850’00-852’00. Gapping down is only half the battle for sellers, who must also break under 809’00-811’00 to put into play 789’50 and then 771’00-772’00.[/pay]