Trading Plan for 1/7

Thursday’s stealth optimism limited the selling. It repeatedly bounced off the same support, and narrowly avoided retesting the morning’s low. Left there, the behavior would have been “ineffectual pessimism,” bullish from a contrarian perspective. But trending up into the close left fewer shorts exposed… This sort of sponsorship doesn’t often maintain new highs, or avoid a bigger decline.[pay]

Pattern points… (Setups and technicals)
Thursday’s 1277.00 pre-open high is a “new Globex trend extreme” that requires an intraday retest. Thursday’s close was still in the process of testing the morning’s 1271.00 low as resistance, keeping alive 1277.00‘s attraction.

Maintaining new highs through 10:15 could marginalize sellers for the day. Gapping up above Wednesday’s ~1273.00 highs would be difficult to reject, too. Firming patiently would reflect patient buyers absorbing sellers.

That said, Thursday’s optimism makes a durable rally difficult Friday. It doesn’t prevent an initially favorable knee-jerk reaction to Friday’s report. But probing new highs at the open would be vulnerable to reversing down. Reversing back into negative territory by 10:15 could trigger a vicious circle that attracts heavy selling into the afternoon.

Oversold RSIs outstanding at Thursday morning’s 1266.25 low have yet to be fully retested. And that’s just the nearest attraction. Last week’s 1249.50 low is the lowest near-term attraction. Other than a new high close, perhaps the most bullish scenario is a gap down that creates new unfinished business above.

What’s Next… (Outlook and opportunities)
Monday’s probe above last week’s 1258.50 high did not even touch 1258.50 intraday. This made the eventual reversal back under 1258.50 unlikely the next day. Often, the buffer lasts three days. Those three days have ended. Avoiding a reversal down by Friday’s close or at Monday’s open could extend this rally into month’s end.[/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.