Trading Plan for 1/28

[pay]Pattern notes.
The market still had room for a “last gasp” rally effort despite Tuesday’s ineffectual optimism. The gap open and entire session spent in positive territory meant that sellers weren’t ready to step in. And the entire session spent in positive territory also meant there was no break under a prior low to give sellers traction.

The market was still in the orbit of Monday’s 850’00 high, and its retest was likely to include the outstanding 852’00 target. These were met by 6:30pm, surging 11-12 points from the cash session close. A consolidation there has extended higher overnight to test 860’00.

The nearby chart depicts all price action since last year’s low. The dashed line that is highlighted green represents the overnight highs. S&Ps would gap up above the past two weeks’ prior highs, and run into natural resistance at higher prior lows. We’ll be looking to sell this strength, perhaps only for a pullback to 850’00-852’00, perhaps for much more. An outstanding gap back to 869’00 might also figure in the picture, but at this point no price action suggests that a runaway rally is likely.

Indicators and Internals.
The one-hour old 860’25 high was just retested while both 1-minute and 3-minute RSI either made lower highs or diverged negatively.

Wednesday’s opportunities.
The negative divergence described above would trigger a pullback under 857’00 targeting 851’50. Bounces would need to hold any test of 859’50. If the pullback this signals does materialize, its resolution should be a recovery to higher highs, potentially back to Jan 13’s 869’00 gap. Anxiousness ahead of the afternoon’s 2:00 FOMC announcement should barely be large enough to inhibit the opening surge from extending up, but might also motivate its pullback to extend down. [/pay]