Trading Plan for 1/8

If not for the afternoon Fed speaker’s QE warning… then Tuesday could have produced the blowout rally that the open’s pattern had promised. Is that opportunity gone, or simply delayed?

Pattern points… (Setups and technicals)[pay]
Gapping up above the prior afternoon’s high, after having trended down into its close, can form a “session-long rally” setup. That is especially when the prior afternoon’s high has printed during the bias environment. Monday’s closing action trended down, and Tuesday’s open gapped up Monday afternoon’s high. Session-long rally?

Almost. Monday afternoon’s high printed while the bias environment was lapsing, which discounted how much selling pressure that Tuesday’s open rejected. So, no session-long rally?

Tuesday’s price action actually did behave appropriately for the setup. Only one timing window was countertrend. And price trended up into the close — well, until the last 10 minutes. At least no prior low was broken.

Why should this discussion of Monday and Tuesday be important to anticipating Wednesday? Because the session-long rally setup often extends the following morning. Having held positive territory throughout Tuesday, and having stopped pessimistically short by only 2 ticks from touching the morning’s high, extending higher Wednesday morning is still likely.

[/pay]What’s Next… (Outlook and opportunities)[pay]
With extending higher being likely, not extending higher immediately would make the recovery suspicious. There is a scenario that would allow gapping down to recover intraday for only a temporary probe of fresh highs. Both scenarios suggest that Tuesday’s ranging around the morning’s 1831.25 bias-up target was equilibrium, so any trending would be vulnerable to reversing. [/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.