Trading Plan for 2/2

[pay]Pattern notes.
Last week’s round trip started optimistically by gapping up Monday. Optimism was alive and well that afternoon, when a threat to turn negative intraday was recovered. Wednesday’s optimism was self-evident from its opening gap up before the FOMC news still extended higher after the news.

Perhaps the most impressive display of optimism was at Thursday’s close. Its session-long decline dropped 31 points from Wednesday’s close, attacking Tuesday’s close that had preceded Wednesday’s gap up. Sufficient time remained to actually materially fill the gap and to resolve its magnetic attraction. Instead of trapping more shorts that could fuel a bigger bounce, optimism remained alive and well.

Optimism died soon after Friday’s opening blip-up. A pre-open dive to new relative lows was recovered momentarily back into positive territory. The balance of the session trended down. Its very last-minute price action firmed – call it an homage to the week-long “ineffectual optimism.”The cash session’s close had already ended under both the week’s lows and the prior week’s close (highlighted red on the above chart), for the first actual signal of the trend reversing down.

Last week’s lows and the prior week’s close share something else in common. They represent the retest of early December’s lows, which were the first reaction down from Thanksgiving’s rally. The rally resumed, so retracing back to the reaction’s low in January meant the rally had ended. The market has since been chipping away at this support.

November’s low has always required a retest, probably on the way to sharply lower lows. If there is too much delay past Monday’s open before resuming the decline, then it might not resume before late-afternoon or Tuesday. The initial slope requires no specific character, but the initial slope will help to place a timeline on the bigger decline it would imply.

Indicators and Internals.
MACD & RSI did not make lower low with Friday’s last low. But any improvement from their prior lows was only minor, and any minor improvement is easily dismissed when occurring late Friday afternoon. Regardless, there is no unfinished business above the market to attract price higher.

Monday’s opportunities.
Sunday night’s Globex open wasn’t very remarkable, with one exception: its price is more in-line with Friday’s optimistic post-close gain, above the cash session’s lower close. The 824’00 level has emerged as near-term support, which seems temporary, and its break should drop to 821’00-822’00. A break there would be bigger news, especially if technicals have deteriorated, putting back into play Friday’s 814’75 and 804’75 targets. Back above 826’50 first would suggest the decline’s resumption will be delayed.

The morning’s econ calendar is busy enough. Its items aren’t the highest-profile, but they’re all relevant and spaced out to keep the opening sequence on its toes. By the way, the calendar is active all week long, right up to Friday’s Employment Situation report. And all this with the Senate debating “stimulus” in the background. Should be fun! [/pay]