Trading Plan for 2/2

Ladies and gentlemen, the world’s briefest trend change! Friday’s bearish signal already ran its course, according to Tuesday’s close. The last one didn’t last much longer. Evidence of a strong bull? Or, not a lot of opportunity for buyers to refuel. Regardless, we shouldn’t ignore how quickly the second bearish trend change was signaled after the first had ended. [pay]

Pattern points… (Setups and technicals)
Does Tuesday afternoon’s suspicious bias-up signal portend the recovery losing steam? The bias environment was exited back under the bias-up signal to invalidate its target. Another rally effort then failed, too.

But the earliest a sell signal could trigger was under 1302.00. And it was only touched at the afternoon’s low.

Meanwhile, Tuesday’s close was a new high. Its open had recovered Friday’s 1291.50 trend change signal (red line). That was one day too late to invalidate the signal. So, the close above its 1298.00 prior high signaled the trend change had ended.

The prior week’s trend change was unusually brief. Will this instance repeat the brevity? RSIs diverged negatively into the high’s Double Top. Notice in the above chart that RSIs diverged positively into Friday’s low. Not shown is Sunday night’s lower lows. Similarly, Tuesday’s negative divergence won’t necessarily prevent a brief new high.

Here’s an interesting chart, comparing Tuesday’s S&P and NDX highs to each of their prior highs. NDX had underperformed during Friday’s fall, and the underperformance repeated at Tuesday’s high. S&Ps could play catch-up with NDX – or, catch-down, as the case may be. Dropping back under its two prior highs, under 1295.25, would signal momentum reversing down.

In any case, more speculative shares are concentrated in the NDX. So, its underperformance suggests that optimists are becoming guarded, while still buying. That relationship typically precedes a bigger downturn.

What’s Next… (Outlook and opportunities)
Early overnight Globex action has dipped. So far, the low has touched the Double Top’s 61.8% target at 1300.00. Its 161.8% target is 1296.75. Either is capable of launching one more probe of new highs. Waiting to recover until Wednesday could leave a gap down to inhibit a rally from gaining traction. Not recovering at all could turn Tuesday into an Island, initially targeting 1284.25.[/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.