Trading Plan for 1/7

[pay]Pattern notes.
Remember how Monday’s session nearly answered several outstanding questions? Tuesday’s session answered those questions. The same way. A probe of new highs was rejected back under prior highs, but not back to morning lows.

This probe was more substantial, every bit as substantial as Monday’s probe could have been, testing 936’00 and then 6-7 points higher. This rejection back under prior highs was also more substantial, barely touching negative territory, but remaining under pressure through the last half-hour.

With only several brief exceptions testing Monday’s close as support, the session traded exclusively in positive territory. Combined with the morning and afternoon probes above prior sessions’ highs, that’s essentially “ineffectual optimism.” All the chipping away at Monday’s close under 927’25 compares optimistically to what sellers could have done, which is chip away at Monday’s lows under 920’00.

The price action is toppy, and vulnerable to momentum reversing down, lacking only a signal to trigger reversal. As with Tuesday’s session, a gap above prior highs is the most credible path for a recovery, but only if the gap is maintained through the opening sequence (Tuesday’s was retraced through 10:15-10:30).

Indicators and Internals.
Multiple technical divergences intraday Tuesday were able to signal sizable reversals within the range. A late-morning signal seemed a little too vague and ill-timed to be credible, but its buyers produced one of the day’s biggest moves. The afternoon’s positive divergence was definitely ill-timed, and it was nominally productive before ultimately reversing back to its origin. There were no outstanding signals at the close.

Wednesday’s opportunities.
Tuesday’s ineffectual optimism facilitates a gap down Wednesday under the morning’s 924’50 low, perhaps lower. In fact, S&Ps barely hesitated dropping back down to the afternoon’s 926’25 lows after the cash session close. So overnight weakness would be credible for extending down ahead of Wednesday’s open. Back above 933’50 would instead let buyers start gaining traction.

The econ calendar is light on high-profile items. Two provide employment stats, which might help to inform a market reaction to Thursday’s Jobless Claims, and to Friday’s biggie – the Employment Situation report. [/pay]