Stock market rally could be primed by overnight sell-off

January 17, 2013 05:54 PM
Price action and setup analysis

If Thursday’s rally satisfied the outstanding consequences… then would another overnight sell-off create more consequences to rally? Probably, unless fresh lows were extended through the open.

Pattern points… (Setups and technicals)

The consequence for sellers not gaining traction had made a probe above prior highs increasingly likely. And any rally above the

1468.00 area was already likely to be big. Thursday’s pre-open rally was predestined to extend higher intraday.
But the rally wasn’t assured of maintaining its gains. At least, not the relevant portion, above ~1471.25 prior overnight highs. It did, avoiding a pullback signal. Closing above 1474.25 puts into play 1503.50. This must be confirmed by a second consecutive higher close.

Meanwhile, the gap back down to Wednesday’s 1467.75 close wants to be filled. It’s natural to at least visit 1468.50 “lower prior highs.” Their attractions could delay the rally Friday, or even prevent confirming it. Thursday’s late dip to 1475.50 narrowly avoided signaling the dip would extend any lower Friday.

What’s Next… (Outlook and opportunities)

Dipping back to the 1468.00 area would risk gaining traction to reverse more substantially. It would also risk bouncing back enough only to test Thursday’s 1473.50 opening print before reversing down. Wednesday’s frail bearish WedEx indicator was invalidated Thursday, but replace by only a late bullish signal. Look out below if it fails.

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.

About the Author

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog