Trading Plan for 1/26

[pay]At the close (How the prior session ended)
A subdued no-bias environment had already indicated the session was unlikely to go out trending. So, holding a test of the range’s 1099.50 upper-end at 3:00 made a test of the range’s lower-end likely. The move was triggered under 1095.75-1096.25 and targeting 1093.00 then 1090.50. The first target held at the close, and the lower target was met after the Globex open.

Pattern points (And technical influences)
Monday’s 1089.75 low touched Friday’s pivotal low, the low prior to the 1086.25 actual low. This all but requires actually probing Friday’s low. The market would be vulnerable either to resuming the decline, or putting in a near-term bottom.

Meanwhile, Monday’s price action reflected a lot of optimism. The open gapped up, and the entire session traded in positive territory. But the optimism was also ineffectual. The afternoon’s probe of the morning’s high held. Ineffectual optimism often appears after a multiple session decline. And it often resolves in new lows.

There was an interesting similarity between Friday and Monday’s buyers. Friday morning’s dip was recovered but never converted into positive territory. Monday morning’s buyers never extended the gap up. Each expended a lot of buying pressure without gaining any traction.

I pointed out this shared property in the chartroom to help explain why not to expect a rally Monday afternoon. I point it out now to explain why Monday’s action was not the start of a recovery. Monday’s gap up masked that the momentum of last week’s decline survived through the weekend.

Bottom line (My underlying premise)
Friday’s close under 1095.50 meant that last week’s downleg would extend. Monday failed to reject Friday’s close. Thursday’s close under Dec 31’s prior low meant that the trend had reversed down, which Friday’s lower close confirmed. Without gapping up above 1102.00 Tuesday or quickly recovering a probe of lower lows, the downleg is likely to resume. [/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.