Trading Plan for 2/23

Two weeks up, one day down… Tuesday morning’s bounce brought in new buyers who are trapped. They’re not much newer than buyers of the past two weeks. So, it’s unlikely the drop has even begun to end. [pay]

Pattern points… (Setups and technicals)
Is Tuesday’s drop a one-day wonder? Unlikely. Single-session retracements of multiple sessions’ gains tend to repeat the following day. Also, Tuesday’s drop signaled a trend change by closing under the prior low.

There were two trend change signals previously, on January 28 and January 19. Each extended only into the next day before bottoming. Those setups had a specific challenge not shared Tuesday, whose low did not hold a test of a prior relevant low (dotted line).

Meeting 1295.00 on this leg (is 11:00am too early?) would indicate more than just a correction underway. Retracing two weeks would be a rounding error compared to retracing two months, or more. Regardless, whenever 1295.00 is met, its likely reaction is an upleg. So, for now, the trend is down and targeting 1295.00

What’s Next… (Outlook and opportunities)
A sort of close quarters Double Bottom at Tuesday’s 1310.25 already produced a minimum 61.8% bounce to 1314.00. The pattern tends to resolve in a new low, but its bounce might first extend to 1316.25 (161.8%) or 1318.50 (261.8%).

1310.50 was the drop’s target, and it was met and held at Tuesday’s low. So, it must be exceeded through any relevant window for the drop’s momentum to resume. Actually, its proxy is 1311.00. Recovering it after probing a fresh low would make a morning rally likely. A bounce’s objective would be 1321.00-1322.00, potentially 1326.50.

Bouncing at the open – prior to probing fresh lows – could also produce a morning-long rally. But the gap back to Tuesday’s close would need to be filled. And the attraction would undermine a durable recovery.

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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.