Trading Plan for 12/6

Oversold, meet overbought… Friday’s late rally produced a new high close. No recovery at all would have been bullish. Now that pent-up buying pressure has been relieved. [pay]

Pattern points… (Setups and technicals)
Friday’s pre-open plunge bottomed while RSIs were still oversold. Higher oversold, but still oversold. That was strong hands selling. The intraday tests of 1216.25 support couldn’t be bothered to probe 1216.00, despite RSIs deteriorating throughout. That’s weak hands buying.

The late-afternoon rally came after 2:30 and didn’t exceed the morning’s high until 3:30. More weak hands. Strong hands would have begun trending at the afternoon’s bias environment, or before the last hour. No wonder that RSIs diverged negatively at the high.

1227.25‘s “new Globex trend extreme” requires a retest intraday. Closing above the 1228.00 area would trigger a new upleg (targeting 1238.00, 1242.00 and 1247.00). Holding a test of 1228.00 would put into play a new downleg (targeting a break under last week’s 1171.00 low, for starters).

What’s Next… (Outlook and opportunities)
A session-long decline setup could be triggered by gapping down Monday under Friday afternoon’s 1217.75 low (red line in the above chart). That’s rare on a Monday, even after Friday’s late-afternoon weak hand rally. But that would be the only way to neutralize the attraction to Friday’s 1227.25 pre-open high.

Likelier is a more limited opening dip. Friday’s last-minute action formed a close-quarters Double Top (circled red). Either its 61.8% or 161.8% pullback (1222.00 and 1220.00, respectively) would launch a new upleg. Its target would depend upon the pullback’s low, but its minimum objective would probe 1228.00.

Wednesday-Thursday’s relentless, optimistic rally has expended a lot of buying energy. It’s unlikely to reverse down on a dime. But it could reverse down on a quarter, and rejecting a morning probe of fresh highs could look very different at the close. [/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.