Trading Plan for 1/8
[pay]At the close (How the prior session ended)
Thursday’s last hour started with a 4-point plunge from the 1138.50 high down to 1134.50. Overbought 1-minute RSI quickly became oversold, while 3-minute RSI had barely returned to its mid-range. A bounce was likely since the drop was not likely to extend.
The bounce could have been a shallow, and instead the highs were retraced. The Employment Situation report could have been vulnerable to bouncing, but that situation was neutralized. RSI diverged negatively at the high’s retest, forming a weak base to launch any higher high.
Neutralizing the oversold situation makes a negative reaction somewhat more possible – I don’t like to label a knee-jerk reaction to news as “likely” or not. But by ending the day above 1132.50, negative reaction to the news should be absorbed and recovered.
Pattern points (And technical influences)
After recovering the open’s odd bobble, Thursday afternoon’s higher close was in-line with Monday’s confirmed breakout. The delayed follow-through suggests that its upleg is likely to be reversed back below Monday’s range by as much as it is exceeded.
That upleg is targeting 1157.00-1158.00. There was no requirement to trade through Wednesday morning’s 1134.50 high. Closing above it has pushed Monday’s breakout forward. It can be negated Friday (or at least jeopardized) by closing under Thursday’s 1127.50 low.
There is already an attraction back down to Thursday’s 1127.00 pre-open low whose RSI was oversold. Its retest need not occur in any particular order. But a test of 1127.00 would find little support at any time other than pre-open.
Bottom line (My underlying premise)
Overnight volatility tends to be subdued ahead of the Employment Situation report. Probing higher highs before the news wouldn’t make any particular reaction likelier. The focus is on the reaction’s resolution, which should be interesting through the morning.
PROGRAMMING NOTE: The upgraded version of our current chartroom software has improved its recording facility. The stopped viewing and sound quality issue has been resolved. I will roll out the new room Friday afternoon to run concurrently with the current version. The switch will be “more” permanent on Monday.[/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.