Day Trading Strategy - 01-02-2015

Proper context can start the day with a solid win and make all the difference.

Enter the Chartroom here (pre-open Market Tour begins at 8:55 ET)

Through the prior close...
2014 started to end with a whimper. Then came the bang, as Wednesday''s noon hour began by breaking aggressively under the morning''s ~2075.50 lows. But testing two-week old prior lows at 2068.00 provided only a temporary pause to neutralize oversold RSIs. Then it was back to work, with two more downlegs testing 2058.00 and 2051.00. RSIs diverged positively at the latter, but it was too late for counter-trend sponsorship to exploit. Sellers gained traction for their efforts.

Overnight action''s new info...
Thursday night''s open gapped up to immediately pierced the 2056.00. buy signal, which had been avoided during Wednesday''s late consolidation. The rally extended into Europe''s opens, probing this morning''s bias-up target by  point up to 2067.00, and then retesting it while RSIs diverged negatively. Its reaction down has tested and retested 2058.00, still well into positive territory, and supported by this morning''s 2059.25 bias-up signal.

If, then...
A lot of buying pressure has been expended overnight, but it has already been well rewarded. Resuming the overnight recovery is difficult when the 2066.00 bias-up target not only has been met, but also has been so influential. If this morning''s action isn''t rejecting and retracing more of Wednesday''s drop, then it is likely extending it to lower lows.

First Trade...
Exiting the open at 9:45 above 2064.00 would be likely also to exceed the 2066.00 bias-up target at 10:15 to renew the bias-up signal. Opening back under 2056.00 would be unlikely to trigger the 2059.25 bias-up signal. And not even holding above 2053.50 through 9:45 would be likely to trigger the 2050.00 bias-down signal at 10:15.

New Year trading wants to be a little bit of everything.

The overnight test of this morning''s 2066.00 bias-up target set a high bar for resuming the rally post-open. The 2059.25 bias-up signal''s support held its reaction down, and launched a retest of 2066.00 through the open.

But the premise remained unchanged, which we discussed during the pre-open Market Tour. Extending the corrective bounce would require an even greater effort than was made already overnight. 

Even the most bullish scenario would likely fill the gap back down to Wednesday''s 2052.50 cash session close. And there''s no reason for that not to include a fresh low.

In fact, the bias-up target''s rejected has extended to also reject the 2059.25 bias-up signal. That''s a synthetic bias-down signal, since it puts into play offsetting tests of both bias-down parameters.

2059.25 was overlapped within 3 minutes of the 10:15 bias timing window, invoking the grace period. It wasn''t recovered by 10:30, so at least a test of the 2050.00 bias-down signal is in-play. Exiting the bias environment any lower at 11:30 would make the 2044.00 bias-down target become "unfinished business below."

And don''t forget there''s already a bigger target in-play at 2040.00.

FRI afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above 2056.25
2050.75
...would target 2062.00
2056.50
Bias-down: under 2049.50
2044.00
...would target 2044.50
2039.00
Signal status: waiting for trigger FAQ INTRO VIDEOS #1 and #2

1. At 1:20, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target.
2. Not triggering either bias signal at 1:20 would be "no-bias," and the bias signals should define the bias environment''s range.
-- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias.
3. Touching the bias signal within 3 minutes either way of 1:20 would invoke a grace period through 1:30 to trigger a late signal.
-- "Late" signals don''t require testing the opposite bias signal, but it''s still likely.
4. Still testing the bias signal at 1:30 after invoking the grace period would trigger "noN-bias," with no bias influence.

A daily summary of high-profile members of several complexes... View a more detailed discussion of each chart at the end of today''s Market Wrap.

Eurodollar Mar Contract (EC, ETF: (FXE))
Almost any initial strength Friday would have triggered a recovery. But the overnight open immediately dipped to a fresh low under 1.2100 and extended sharply lower to test 1.2010. A corrective bounce has room up to 1.2075 while maintaining potential for extending down to 1.1935.

Gold Feb Contract (GC, ETF: (GLD))
Dropping overnight allowed Friday''s open to immediately fulfill the decline''s minimum 1167.50 objective, piercing it by 20 cents. A consolidation there was retraced even more substantially, testing the 1195.00-1200.00 resistance range''s lower-end. So long as it isn''t recovered, then at least a dip to 1176.50 is likely.

Silver Mar Contract (SI, ETF: (SLV))
Friday''s opening low once again held a test of the 15.55 area, and once again reacted up. Back under 15.70 would resume the decline.

30-year Treasury Mar Contract (US, ETF: (TLT))
Momentary weakness at Friday''s open reacted up sharply from testing the 144-04 pullback limit and and surged to 145-30. Fresh highs remain in-play so long as 145-04 holds as support.

Crude Oil Feb Contract (CL, ETF: (USO))
Thursday night''s open spiked up to attack the 55.15 bounce limit to within a nickel, and then slid to fresh lows at 52.03. Reacting up sharply from there to 52.75 still reacted back down to the lows, leaving at least 51.75 in-play.

Natural Gas Feb Contract (NG, ETF: (UNG, UNL))
Friday''s gap up to 2.95 rejected all of Wednesday''s late afternoon slide to 2.88. That extended significantly higher intraday to fill the gap back up to Tuesday''s 3.09 close. Reacting down very sharply from he gap''s resistance fell back under 2.97. A bottoming pattern''s parameters should be obvious after Monday morning.

If Friday''s bias environment were exited just a little higher... then a substantial short-squeeze would have been triggered. More so, a bullish Pivot Reversal setup could have formed. And new highs could have been probed by Wednesday, or earlier.

Pattern points... (Setups and technicals)
Not that the alternative is bearish. Friday afternoon''s low has the same characteristics, no matter its resolution. 

It fulfilled the decline''s 2040.00 objective, and the afternoon''s bias-down target 1 point lower. Its probe originated from above prior lows after the bias environment had begun, and the prior lows were recovered before the bias environment had ended.

But the only short-squeeze was a 7-point position-squaring window exercise triggered above 2048.75 that touched 2055.75 at the position-squaring window''s end 15 minutes later. Its 10-point reaction down into the futures close ended that charade.

Oversold RSIs at Friday''s 2038.75 low require an eventual retest. That could be done Sunday night down to 2036.00 and reversed into Monday''s open. Another short-squeeze setup would be underway. Otherwise, opening under Friday''s low at all would be likely to open under it a lot, like under 2030.00 or deeper.

What''s Next... (Outlook and opportunities)
Don''t forget that there is no Saturday Review this weekend due to the holiday. We took a little extra time in the post-close Market Wrap to review the bigger picture. Please don''t hesitate to ask any questions in its Activity Feed post.

MON morning signal (triggered at 10:15 ET) SPX ES Bias-up: above 2062.25
2056.75
...would target 2068.50
2063.00
Bias-down: under 2053.50
2048.00
...would target 2046.25
2040.75
Signal status: BIAS-DOWN, BIAS-DOWN TARGET EXCEEDED FAQ INTRO VIDEOS #1 and #2

1. At 10:15, trading above the bias-up signal or under the bias-down signal would put into play a test of its bias-up or bias-down target.
2. Not triggering either bias signal at 10:15 would be "no-bias," and the bias signals should define the bias environment''s range.
-- A test of the opposite bias signal would be targeted if one bias signal was tested before triggering no-bias.
3. Touching the bias signal within 3 minutes either way of 10:15 would invoke a grace period through 10:30 to trigger a late signal.
-- "Late" signals don''t require testing the opposite bias signal, but it''s still likely.
4. Still testing the bias signal at 10:30 after invoking the grace period would trigger "noN-bias," with no bias influence.