Trading Plan for 12/8

Excessive optimism is just that, excessive… Monday night’s rally through the 1228.00 target expended all of its buying energy before its sponsorship could refuel. Tests of support are now likelier to attract sellers than buyers. [pay]

Pattern points… (Setups and technicals)
Tuesday afternoon’s no-bias rally extended a little higher than I expected it would, exceeding 1229.50. The bounce extended every bit as high as it could, testing the 1233.00 bias-up signal. Nevertheless, the bounce resolved exactly as it should, having failed to gain traction.

Oversold RSIs on breaks under 1231.00 and 1229.50 into the last hour indicated that sellers were getting serious. They were likely to sponsor trending down into the close. The gap back to Monday’s 1222.25 close was probed into and out of the cash session close, and probed down to 1219.25 after the futures close.

There is no unfinished business above, but a bounce could test 1228.00 as resistance (solid red line). That was the objective for retesting November’s prior high, where a Double Top would form. Gapping up above it prevented it from being tested as resistance. It’s not required, but it’s common.

Oversold RSIs have yet to be retested at Monday night’s 1219.00 low, Monday’s pre-open 1216.25 low, and last Thursday’s 1202.00 pre-open low. Just closing under the 1220.00 last relative low (red dashed line) would signal the trend had reversed down.

What’s Next… (Outlook and opportunities)
Tuesday’s close trended down, so gapping up above its 1233.00 afternoon high would trigger a session-long rally setup. Gapping up any less would be rejected. Testing 1228.00 as resistance would likely react down, whether overnight or intraday. The alternative to gapping up or bouncing at Wednesday’s open is to already be far along extending Tuesday’s drop. [/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.