Day Trading Strategy - 01-05-2015

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...
Stocks came back from the New Year''s Day break by actually coming back from the New Year''s Eve breakdown. There wasn''t going to be anything easy about that. Gapping up 8 points from Wednesday''s ~2053.00 close and immediately extending higher another 5 points to 2066.00 still couldn''t reverse Wednesday''s last half-hour plunge. So, Friday reversed back down and extended the decline to its 2040.00 target, also fulfilling the afternoon''s 2039.00 bias-down target. Bouncing through the position-squaring window retraced 61.8{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6} of the post-open high at 2055.50 before dropping 10 points into the close.

Overnight action''s new info...
Friday''s last-minute 10-point plunge immediately began extending down another 10 points. Room for noise under the decline''s 2040.00 target down to 2036.00 was attacked to within 2 ticks. The portion that probed under Friday''s low was a singular spike down, so it is not a "new Globex trend extreme." Bouncing from there has twice tested 2048.00, reacting down both times to at least 2040.75 -- this morning''s bias-up signal and target, respectively.

If, then...
All caught up? Seriously, the "previously on Downton Abbey" is shorter. But each of the elements listed above is pertinent to where the market is, how it got here, and what comes next. The decline''s 2040.00 target is met. Room for noise under it contained an overnight probe, without creating any requirement to be retested. Elsewhere, Crude Oil is fulfilling its 51.75 target, currencies are greeting the new week very extended with potential to invert. And a full week lies ahead. If that''s not enough to have depleted recent sponsorship and to attract counter-trend sponsorship for an aggressive rally, then this decline should be much lower soon.

First Trade...
Exiting the open at 9:45 back above 2052.50 would be unlikely to trigger the 2048.00 bias-down signal 30 minutes later at 10:15. Exiting the open above 2055.00 would be likely also to trigger the 2056.75 bias-up signal. Exiting the open under 2042.00 would be likely also to trigger the 2048.00 bias-down signal.

Not getting off that easily.

Sunday night''s opening drop to 2036.50 had been recovered overnight into a 2041.75-2048.00 range. Coincidentally, those are this morning''s bias-down parameters.

Breaking under the range''s lower-end was extended back down to Sunday night''s low. Bouncing into the open got only so far as 2040.00 before reversing back down to and through the overnight lows to now test 2020.00.

Notice, by the way, that the weekend was exited with extreme sentiment. Often, that is a sentiment extreme. That was at 2040.00, and now another sentiment extreme is printing at 2020.00. Back above 2025.50 would start to signal momentum reversing up. 

If this sentiment extreme doesn''t hold, then 2016.75 would be targeted next. And assuming this leg isn''t recovered abruptly today, or somehow rejected tomorrow, then sub-2000.00 is in-play.

MON afternoon signal (triggered at 1:20 ET) SPX ES Bias-up: above 2036.25
2028.75
...would target 2042.25
2035.00
Bias-down: under 2027.50
2020.25
...would target 2021.50
2014.00
Signal status:BIAS-DOWN, BIAS-DOWN TARGET MET 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))
Gapping down Sunday night and extending sharply lower to 1.1895 was only able to range narrowly sideways intraday Monday. Back above 1.1950 would at least target 1.2000-1.2025, but the trend otherwise remains down.

Gold Feb Contract (GC, ETF: (GLD))
Spiking up through 1195.00 Monday went on to test 1200.00 resistance and higher. Having fulfilled the decline''s 1167.50 target last week, the trend will have reversed up on a second consecutive higher close Tuesday. Meanwhile, there is potential for at least a corrective dip to 1285.50.

Silver Mar Contract (SI, ETF: (SLV))
Surging Monday to test 16.20 resistance was still testing it into the afternoon, but its recovery for two consecutive sessions would signal the trend had reversed up. Its resistance should otherwise hold, with there still having been too much optimism at last week''s retest of the lows to be a reliable bottom.

30-year Treasury Mar Contract (US, ETF: (TLT))
The rally''s minimum objective to recover December''s highs was extended Monday to test 147-00. Potential for extending to 149-08/149-10 remains intact so long as pullbacks now hold 146-12.

Crude Oil Feb Contract (CL, ETF: (USO))
Extending to and through the 51.75 target to 49.95 has put into play 47.45. Closing above 52.65 Tuesday would undermine the lower target, if not also begin reversing momentum up.

Natural Gas Feb Contract (NG, ETF: (UNG, UNL))
Midwest cold snap helped to continue last week''s whacky price action. Monday gapped up above Friday''s outsized high, but reversed down from 3.17. The bap back down to Friday''s 2.95 close was filled, and recovering the 3.07 buy signal would still be credible for reversing the trend up.

If Monday afternoon''s low had printed earlier... then its reaction up would have been early enough to attract counter-trend sponsorship for short-squeeze. Was the decline just trying to squeeze out remaining weak-handed sellers?

Pattern points... (Setups and technicals)
Last week''s three-day decline stretched to four days on Monday. And not by just a little. 

Friday''s test of 2040.00 support had retraced 38.2{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6} of the two week-long 1964.00-2089.00 rally from Dec 16. The retracement extended to 61.8{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6} when Monday''s low tested 2011.50. 

But the 1-2 punch of reacting to both 38.2{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6} AND 61.8{faed0d6dca04cec8b6b7985efddb9b0651107a3aebb05f69f0166038b8c951f6} retracements should be only temporary -- if at all. A corrective bounce would likely peak at either 2022.50 or 2029.00 (probably the higher, since Monday''s late bounce came within 2 ticks of its 2020.25 bounce potential).

Reversing down from there, or simply extending down without delay, would next target 1994.00 and potentially also 1983.50.

The decline from last week''s highs is still likely just temporary. So, after extending down -- or by somehow extending an immediate bounce above 2029.00 to avoid extending down altogether -- there remains potential to fresh highs.

What''s Next... (Outlook and opportunities)
The weekend was book-ended by two potential short-squeeze setups. Neither fully materialized. That doesn''t preclude the morning crowd from trying what the afternoon crowd can''t do. Overnight gains that aren''t retraced through the opening 15 minutes of volatility should improve through the morning. But not rallying at the open would more likely extend the decline.

TUE morning signal (triggered at 10:15 ET) SPX ES Bias-up: above 2030.75
2023.25
...would target 2036.25
2029.00
Bias-down: under 2018.75
2011.50
...would target 2013.25
2005.75
Signal status: NO-BIAS 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.