Trading Plan for 1/5

The market dodged a bullet, the bullet of closing too quickly back under last Wednesday’s 1258.50 high. The timing would have been very odd since Monday’s close above last week’s high should have interjected at least one day (and potentially three) before reversing down. [pay]

Pattern points… (Setups and technicals)
Tuesday’s drop really wreaked havoc on my pattern’s timing. Either rallying or selling off into the open would have tracked a template. Rejecting an opening rally did not. The afternoon’s recovery puts the pattern back on-track.

Closing nearly flat Tuesday suggests that sellers were absorbed. A close above the morning’s 1270.00 high would have been decisive. Just closing above 1266.75 would have signaled to hold long through the close. The close did firm, but it was almost reluctantly optimistic and not overly-so.

Perhaps Tuesday’s drop refueled buyers. A retest of Monday’s high could gain traction and extend for another 15-18 points to test the 1290.00 area. Regardless, I’m still inclined to give buyers a benefit of the doubt until a key support is broken.

Monday’s 1263.50 opening gap required being retested from below. Any test would be only arbitrary if not originated from a pullback to prior highs. Despite the havoc it wreaked, 1258.50‘s intraday test as support did react up to (and through) 1263.50. That attraction has been neutralized.

What’s Next… (Outlook and opportunities)
Trying to extend the rally overnight would be credible above 1266.75 and 1268.25. Buyers would lose traction by probing Tuesday morning’s 1270.00 high without recovering it through a relevant timing window. Otherwise, a retest of Monday’s 1272.50 high would target 1274.00.

Morning weakness need not gain traction. But a 1258.50 shouldn’t be retested before new highs. Fresh lows could still bounce again from 1256.00. But now that 1258.50 has been tested as support, a close under 1254.00 would be capable of extending down [/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.