Trading Plan for 2/15

What are the odds? A Friday breakout, confirmed on Monday. It’s not normal. Immediate weakness following the close is trying to get back to reality. [pay]

Pattern points… (Setups and technicals)
Breakouts on one day must still be confirmed by a higher close the following day. This helps to filter out excessive optimism that isn’t durable. And it helps to filter out Friday short-squeezes, which are more about covering ahead of the weekend’s illiquidity.

Friday breakouts are rarely confirmed, by a higher close on Monday. So, Monday’s higher close is curious.

Plenty of characteristics undermined Monday’s otherwise strong close. Only 1-minute RSI was overbought at the high, not 3-minute. The cash session close was still in the process of testing the 1330.00 objective. And Monday’s gains weren’t very impressive, let alone breakout quality.

But this is the biggie: the 1327.75 futures close was not positive on the day. In fact, a reaction to the FDX warning sent S&Ps back down to the 1325.00 overnight low. Which has been holding for more than an hour. This is not just a knee-jerk reaction.

Absorbing the drop and recovering Tuesday would give the rally every benefit of the doubt for being able to extend higher. Otherwise, Friday’s breakout would be considered excessive optimism. And Monday’s “confirmation,” too.

What’s Next… (Outlook and opportunities)
Exiting Tuesday’s open under the 1325.00 area would reject Monday’s rally. By implication, that would also reject Monday’s confirmation of Friday’s breakout. Closing under Friday’s 1320.50 noon hour low would reject its breakout. But closing back above the 1330.00 area would suggest the rally was extending higher.[/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.