Trading Plan for 2/22

[pay]At the close (How the prior session ended)
Price didn’t net any improvement Friday past the morning’s gains. The noon hour was entered at 1108.00, and the afternoon ranged 3 points either way around it. Nothing unusual in that, not for an afternoon, not for a Friday, and not for an expiration. [Yellow on the nearby chart highlights each of last week’s cash sessions.]

Pattern points (And technical influences)
It’s also not unusual – not for an expiration – that Friday’s new recovery high failed ultimately to close above Thursday’s high [boxed in red]. While Friday’s cash session close was above Thursday’s high, futures ended lower. Albeit barely lower, but still in the process of testing Thursday’s high.

Regardless, expirations don’t have a history of producing breakouts. And among the rare breakouts that they do attempt, don’t have a history of being confirmed on Monday. A higher close would get a benefit of the doubt, but there would still be doubt, especially if volume remained low.

In the context of Friday not being a breakout, buyers did not gain traction despite probing new highs intraday. This means the only way to extend the rally is by gapping up. So, at the risk of being whipsawed, gapping up would get a benefit of the doubt for being able to extend higher. There would still be doubt, and little tolerance for a pullback.

While Friday afternoon was ranging sideways, its two cash session lows tested Thursday’s 1106.00-1106.50 “higher prior lows.” Its support has been chipped away, leaving little defense to prevent 1101.00.

Indeed, some retest of Thursday night’s 1093.00-1095.00 lows should be retested eventually [highlighted blue on the above chart] if only the range’s 1095.00 upper-end. Closing under its 1093.00 lower-end would signal a downleg underway.

I’m including a bigger picture look that stretches back into October. It shows the last two tops, their pullbacks, and their resolutions. It also highlights their similarities. These seem pretty far removed from each other to be constrained by my rule that consecutive similar setups resolve differently.

Nevertheless, last week’s action has already slid through its prior high [circled red], expending buying pressure, unlike November’s extension that gapped up. Also, the current bottoming effort fell further, stayed longer, and recovered (this far) faster. But the underlying structures are similar enough to be prepared for a different outcome, if not outright anticipating it.

Bottom line (My underlying premise)
Monday morning’s action won’t be predictive because expiration tends to influence it, too, almost as much as Friday. Whether it trades higher, lower or flat, it’s the close that will be telling. That said, there’s not much room or much time for much of a pullback without sellers gaining traction. A recovery to extend higher needs to hold 1101.00 or 1095.00. Much lower for much longer could get much, much deeper by mid-week.[/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.