Trading Plan for 1/31

Finally. In more ways than one? Friday’s drop proved that Wednesday and Thursday’s price action was distribution, and not chipping away at the highs. The next 30 points either way depended on one or the other. Already diving 30 points intraday suggests that may be the least of it.[pay]

Pattern points… (Setups and technicals)
Friday morning’s 1272.50 low was probed a little after noon, and a little more before the close. The burden of proof on buyers was to rally off of it. So, holding support in this instance is bearish. Sellers didn’t gain any extra traction – but they just needed to avoiding losing any. And they did avoid it.

It’s not highlighted on the chart, but notice how Friday’s lows formed a “Falling Wedge.” That tends to resolve down sharply when it appears in a downtrend.

Three points to make about the chart: 1) Thursday’s new high created a new prior low close, which clearly broke. This signals a trend change. It broke a lot, as did the last one, so its follow-through may be limited.

2) Another trend change would be signaled under the 1268.00 area. That’s meanwhile support. Be prepared for a potential obligatory bounce, unless broken early.

3) 1277.00 was Thursday’s target. The rally from there came too quickly for there to have been accumulation. (This was one reason why we were looking for the other stage of the bearish template.) Revisiting it so quickly after it had been productive in the interim suggests that it’s not going to offer much support this time.

What’s Next… (Outlook and opportunities)
A last-minute drop (literally, the last-minute of futures trading) from 1274.00 to 1270.50 could be a taste of things to come. Somebody knows something? Look out above Sunday night if they’re proved wrong.

Otherwise, the Falling Wedge in a downtrend tends to resolve by extending down sharply. That often runs out of energy quickly, but from much lower levels. The effect might be mitigated over the weekend, but I wouldn’t otherwise consider getting long without first recovering 1278.00-1279.00.  [/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.