Trading Plan for 2/23
[pay]Pattern notes.
One week ago I recall watching Sunday morning’s talking heads, and thinking, “this won’t be good.” Talk of nationalizing banks was everywhere, but it was a Republican’s support for the idea (Graham, SC) that made it seem all the more real. Sunday night’s Globex open dropped sharply, stayed down through Monday’s holiday, and extended lower through the week.
This weekend brings similar “news” of a proposed tax hike on the wealthy (i.e. employed) and on businesses (i.e. employers). This won’t be good. At least, it shouldn’t be, just as last week’s news shouldn’t have been good for the market. Last week I was prepared to turn bullish near-term had Sunday night’s open not responded poorly to that morning’s commentaries. It didn’t. Similarly, I am prepared to turn bullish near-term if tonight’s open doesn’t act very poorly. It might:
Friday’s lows satisfied one of the more meaningful targets at 756’00 for retesting November’s low. A late-afternoon rally back to session highs probed Thursday’s higher prior lows and even filled the gap back to Thursday’s 778’00-779’00 close. The entire session was spent in negative territory, but that might yet be proved an anomaly related to being the month’s option expiration day. The resistance of Thursday’s underbelly has been chipped away, so a gap up above Thursday’s 778’00-779’00 close could extend higher throughout the day.
It is true that the decline fulfilled some unfinished business below, and the afternoon’s bounce chipped away at resistance above. It is also true that the decline chipped away at support and the bounce neutralized magnetic attraction above. The winner of this debate can be determined by flipping a coin, or by noting that Friday’s close fell back under its morning’s highs, and back under Thursday’s lows.
Semi-interestingly, Friday’s low actually equated to the price of December 2008’s contract that accompanied November 20’s cash session close. And I was seated next to Steve Jobs in a posh San Francisco eatery in 1986. So, what? Exactly. So, what. Friday’s late-afternoon low was kind of neat, but its meaningfulness was arbitrary. And therefore, so was the afternoon’s recovery attempt.
Indicators and Internals.
1-minute MACD & RSI improved into Friday’s low. No other period’s MACD & RSI did so well. The 3-minute RSI printed its lowest oversold on the bar prior to the price bar that printed the session low. This exception may suffice for marking intraday oversold, but not normally a sustainable low. The 3-minute RSI did diverge negatively at the late-afternoon high, and that reading has yet to be neutralized by another oversold.
Monday’s opportunities.
Trend lows just don’t happen on Fridays. Retests aren’t much more likely to hold on Fridays, but a retest Monday of Friday’s lows should lead either to a sharp break lower, or to a steep bounce. The resolution might not be obvious before Tuesday, because the characteristics of an expiration session tend to be duplicated or mirrored the following day. Friday gapped down, ranged sideways, and tested prior highs as resistance. Monday might gap down and range sideways, but test prior lows as support.
Strong sentiment doesn’t normally interfere with expirations like it did last week, so Monday might depart from Friday’s example. A gap up maintained above Friday’s 779’50 high would signal a session-long rally, unless the gap up were too ambitious and tried also to recover 797’00. Falling under 760’00-762’00 instead could help to resolve unfinished business below, or else lead to the next downleg targeting a probe under 700’00. [/pay]