Trading Plan for 12/7

[pay]Pattern notes.
Friday’s intraday sell-off dodged a big bullet, when it avoided closing under 1104.25. This is the interim low of the two prior highs. Closing under a prior interim low isn’t necessarily bearish, except when preceded by a probe of the two prior highs that originates from under them.

Another bullet dodged was the Gotcha reversal, a similar setup that simply fails to maintain a probe of the highest close. Friday’s open disqualified the Gotcha by gapping up above the highest close.

The mid-morning plunge had already dodged a bullet by stopping at 1095.00 instead of break it. This level was made relevant at Thursday’s close: gapping under it Friday was the only path to resuming Thursday’s late decline. So, falling to 1095.00 stretched sellers to the furthest possible point before gaining traction, and then trapped them.

Obviously, their short-covering helped to fuel the afternoon’s recovery. That’s nothing to gloat about. The weekend’s impending illquidity exacerbated the sell-off so its sponsorship was in weak hands. The maximum amount of shorts were trapped, and the morning’s plunge originated during a bias-up environment, so the “recovery” should have been quite substantial. All it really did was prevent the sell-off from resuming.

The noon hour’s bounce was retraced entirely back to the morning’s low, which did hold its retest as support. And the futures session ended above the noon hour’s high. But the noon hour’s high was still being retested at the 4:00 cash session close. The afternoon’s range was truly resolved. None of which requires the drop to resume Monday, but leaves the door open.

Indicators and Internals.
Technicals left no unfinished business at Friday’s close. If anything, overbought RSIs at the last-minute post-close high reflect just that – extended and perhaps expended buying pressure. The timing isn’t intraday, so it offers no pullback protection that would require a dip to recover.

Monday’s opportunities.
Friday’s cash session gapped up to 1113.50, which might attract price higher for a retest. It would serve by proxy as a retest of the high, which would also be a retest of the two prior highs, and a fourth consecutive opportunity to reject opening buyers. Exceeding 1113.50 through the opening sequence would target 1121.75, and another chance for sellers to trap themselves with pullback down to 1111.00… Simply breaking under 1101.00 would signal that Friday morning’s decline had resumed, confirmed under 1098.00, and targeting a day that could live in infamy. [/pay]