Trading Plan for 2/21
If buyers were compartmentalized at the top one day earlier… then is it possible that Wednesday’s sellers were compartmentalized, too? In other words, is it possible for the big drop to start bottoming already?
Pattern points… (Setups and technicals)[pay]
In the morning’s Market Tour, I discussed the optimal setup for a top, which involved probing fresh highs. Of two other setups, the least likely was to trend down enough to close under prior lows. That’s also the least reliable setup, since it required trending down substantially, and expending an awful lot of selling pressure.
Of course, the least likely setup formed. Wednesday’s drop from 1527.50 closed under Friday afternoon’s 1511.50 prior low to signal a trend change.
What would invalidate the trend change signal? A second consecutive close under 1511.50 Thursday would confirm (notice that this condition differs from being a second consecutive lower close). A signal is most vulnerable to being invalidated when it is at its freshest. Also, Wednesday’s drop fulfilled a lot of selling pressure at its 1509.00-1511.00 objective. There is potential down to 1501.00 intraday — but no requirement to test it, and no assurance of avoiding a recovery from it.
1515.00 support had been chipped away already, and we knew before Wednesday there was no bullish reason to revisit it. Now that it has been probed again, opening back above it Thursday would suggest the probe under it had been absorbed. It is otherwise resistance — up to the 1518.50 area — with another resistance level at 1526.00. Their tests might undermine Wednesday’s trend change attempt, but still not prevent another attempt.
[/pay]What’s Next… (Outlook and opportunities)[pay]
This week has been an unusually light economic calendar. Even if it were heavy, Thursday’s schedule would still stand out. Look for the market to be especially volatile… again. [/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.