Trading Plan for 1/5

[pay]Pattern notes.
Much is being made about the substantial year-change rally – almost 80 points from last week’s pullback low through its high, or 9.3%. Friday’s early price action put into play a 936’00 target, and immunity from selling pressure through Wednesday’s open. The two may prove to be mutually exclusive.

The target was nearly met already, within 3 points at Friday’s last-minute high. Either the ultimate target is much higher, or an unsustainable bubble has formed. Momentum hasn’t reversed down, and higher highs are likely Monday. But the immunity from selling pressure requires a close above 943’00-944’00. Meanwhile, the rally become vulnerable to reversing down sharply upon testing Friday’s outstanding target.

The nearby 1-minute chart depicts Friday’s high as it formed a Double Top (circled red). Its reaction extended beyond the cash session close (red bars). The low measured 61.8% from the Double Top’s swing, a popular stopping point for the pattern. Double Tops were made to be broken, there is nothing stopping Sunday night’s open from immediately beginning its recovery. There is room down to 919’00 before suggesting that buying has been expended already.

Indicators and Internals.
The above chart also depicts both MACD & RSI diverging negatively on the Double Top’s second high. The 1-minute readings barely improved before the futures settlement, but 3-minute readings continued to deteriorate. Last week’s low volume makes last week’s gains all the more suspicious. The cats were away, but they’re coming back now. Bigger money can still take the baton hand-off, but a sell-off Monday would mean the race had already ended.

Monday’s opportunities.
So long as pullbacks hold 919’00 (preferably 922’00) my posture will be long, for a probe above Friday’s highs targeting 936’00 by 1-point either way. We should look for signs of topping there, but be prepared for extending another 7-8 points higher to 943’00-944’00.  The day’s two econ reports aren’t very high-profile, but one is at 10:00 which can leverage its impact if there’s a surprise.[/pay]