Trading Plan for 12/8
[pay]Pattern notes.
Friday morning’s low is a valid low, meaning that the rally it produced is legitimate. The pre-open lows were tested down to 817’00 and recovered through 10:15, then again once or twice, trapping a lot of shorts. The rally exceeded expectations when it filled the open’s gap back to 848’00. Then it added nearly 32 points.
The low stopped optimistically short of forming a bottom. required filling the gap back to Monday’s close and probing it, by at least several points down to 807’00-809’00. Instead the low barely touched Tuesday’s lows which had already reflected optimism for failing to fill the same gap.
Gaps can expend more pressure than they create. A weekend’s rapidly approaching illiquidity can magnify the smallest shift between expending or creating energy. It is in this way that hesitation among Friday morning’s sellers was leveraged into a week-ending surge.
A near-term retest of last month’s lows depends greatly upon proving Friday’s rally is not durable. A gap down Monday need not retrace the entire gain to reject it. But it could be only refueling if the open holds 865’25, or even 861’50. And above 876’25-878’50 would keep sending sellers to wherever Friday’s session sent them, perhaps for another several days as the market works its way higher to 895’00 and 910’50.
Indicators and Internals.
MACD & RSI deteriorated throughout Friday’s last 15 minutes while price trudged higher. This setup normally deserves either a retracement under one prior relative low – the nearest is 865’25. If the setup were going to be invalidated instead, it deserves nothing less than a gap up above prior relative highs at 876’25-878’50. Six times more up volume than down volume produced only 2.3 times more advancing issues than decliners, making at least a support test likely.
Monday’s opportunities.
Saturday morning’s news of the next administration’s big, big, big government proposal had no immediate effect at Sunday night’s open. That’s somewhat surprising, even if Friday’s abbreviated selling wasn’t due to leaking the news earlier. Regardless, this move began by absorbing the first hour’s counter-trend move, so that’s a characteristic to monitor for either refueling the rally, or expending it too quickly. [/pay]