Trading Plan for 2/18
[pay]Pattern notes.
Rumors of the market’s revival were exaggerated. The origin of Thanksgiving’s rally always required it to be retested, regardless of how high the interim bounce, and regardless how long. So, after all the advance billing for the long-awaited retest of November’s low, Tuesday’s drop may have been the salvo that sinks the battleship. But the ship isn’t yet sunk.
The 799’00 and 792’00 targets haven’t been in-play as long, but they were the products of weeks-old patterns nonetheless. Gapping down to fulfill them both Tuesday satisfied a lot of selling pressure that was weeks-old. They weren’t recovered through the close, so the decline remains likelier than not to extend down. Perhaps the only way to avoid this would be to gap up above Tuesday’s 797’00-799’00 highs, launching a rally into Friday morning.
Otherwise, with a bounce limit overnight of 792’00 or 795’00, the remaining question is just how the decline resumes. Wednesday’s open can simply start sliding towards its 774’00 target, or a slide Tuesday night can deposit the market there. In the latter case, the balance of the morning could repeat Tuesday’s narrow range until the afternoon’s FOMC Minutes.
Indicators and Internals.
S&Ps fell through the cash session’s close, and technicals deteriorated along with price. So far a bounce overnight has touched 791’00 where technicals have already been diverging negatively. Their alignments at the bounce’s low suggests the bounce is doomed to failure, as the low requires at least a retest.
Wednesday’s opportunities.
The 2:00pm FOMC Minutes might still precipitate enough controversy to generate volattility before and after its announcement. The economic calendar is pretty busy otherwise before the open. In case of another trading range, it probably wouldn’t be as narrow as Tuesday. But a big gap down would be just as likely to form the morning’s low. In case of gapping up above Tuesday’s highs, after Tuesday’s last leg was down, a session-long rally would be indicated. And more important in this scenario is that a bigger multi-session bounce would be underway. [/pay]