Trading Plan for 2/10

Saturday’s Strategy Session begins at 9:30am ET… We’ll discuss the market’s bigger picture, and also review stock charts on request. (The next Strategy Session will be two weeks later due to the interim three-day holiday weekend.)

Pattern points… (Setups and technicals)[pay]
Wednesday’s breakout above 1343.00 was hardly confirmed Thursday by closing back at Wednesday’s 1348.25 pre-open high. The signal could have still produced a recovery from dipping to 1343.00. But the overnight drop was much deeper than that.

Friday’s intraday follow-through was not deep enough to invalidate the breakout, which required closing under Tuesday’s 1333.25 prior low. That means the rally could resume immediately, if begun appropriately, for example by gapping up above 1343.00.

And Friday’s close was still testing Wednesday’s 1338.25 low to avoid signaling whether the trend had reversed down. That means sellers probably need new sponsorship to extend down, because Friday’s sellers may not have gained traction.

Monday’s open could still gap down. Testing 1329.00 lower prior highs — back to 1323.00 or 1317.50 — could complete a correction and launch a retest of last week’s highs, if not a new upleg.

The rally’s 1343.00 target may continue proving itself unwilling to let go, as it proved all last week. A retest of 1343.00 is not required. But retesting 1343.00 sooner rather than later — from a retest of Friday’s ~1334.00 low, instead of from testing 1329.00 “lower prior highs” — could be required to form a more durable top.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Friday’s last-minute surge extended above the session’s 1340.25 prior high to 1341.00. But not when it mattered. The cash session close equated to 1339.00, barely making it that high that late. That’s the work of weak hands. Although extending any higher Sunday night could gain traction, it would further define the move as being doomed to failure. [/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.