Trading Plan for 1/3
If “as goes January so goes the year” were relevant… then this year could offer the best returns yet. Huh? That sounds weird when 2014’s first session trended down throughout. But it left outstanding a gap back to Tuesday’s futures close that is 20 points above Thursday’s close. The gap doesn’t require being filled, but it would be an attraction if Thursday’s downleg were to lose its traction. And that could occupy enough of January for the month to be positive. Meanwhile, such generalities don’t offer any real world application. They’re already only borderline likelihoods, so an actual cause and effect correlation would be bearish this year. That’s because recent years have almost outperformed the historical range, making a massive underperformance increasingly likely.
Pattern points… (Setups and technicals)[pay]
Two consecutive positive divergences were ignored Thursday. Despite their fresh lows reacting up sharply, their prior highs weren’t touched. Ignoring consecutive positive divergences, instead of reacting up to a prior high high, can reflect much bigger selling pressure coming down the pipeline.
A vacuum is created when that extra selling pressure fails to appear. An oversold bounce fills this vacuum — not quite to the same degree as extending the drop, but still pretty big. Regardless, Thursday’s close did not resolve the condition.
The second setup’s 1828.00 prior high was probed during the 3:10-3:20 timing window. It was probed again during the position-squaring window. It was not recovered at the close. That’s not in itself bearish, but it is a missed opportunity to be bullish. Rejecting the bounce and closing back under 1825.25 would have been bearish — but 1825.25 was never probed, so not closing under it doesn’t represent a missed opportunity to be bearish.
Probing lower lows through every timing window including the afternoon bias environment had put the burden of proof on buyers. They failed, and not for lack of trying. A credible bounce must compensate for its delay by gapping up Friday morning. Otherwise, the trend remains down, likely to visit the 1816.00 area, where a bigger signal would trigger either way.
[/pay]What’s Next… (Outlook and opportunities)[pay]
Normally, the month’s first Friday would release the Employment Situation report. Not this month. There is no way to know, but it would be interesting to learn that Thursday’s decline was exacerbated by defensive posturing ahead of the report. In any case, unusual timing of high-profile influential events does impact price action.[/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.