Trading Plan for 2/25
[pay]Pattern notes.
Tuesday’s cash session gapped up, traded exclusively in positive territory, and trended higher throughout the day. Sentiment could not have been more optimistic, not without also gapping up above the prior afternoon’s highs and not filling the gap back to Monday’s close. Regardless, nothing about Tuesday’s session was pessimistic.
That’s not necessarily bullish. The day’s 30-point gain retraced all of Monday’s loss back to Friday’s close, which might seem productive. But Tuesday was an “inside day” (Monday’s range contained all of Tuesday’s price action). Buyers produced nothing on the chart that wasn’t already there, so their optimism was ineffectual.
Trending throughout an inside day isn’t necessarily bearish. The bearishness is a function of expending buying energy without refueling, and without achieving anything not previously produced. None of which amounts to being a sell signal, it only characterizes further buying pressure as also being ineffectual. A probe above Tuesday’s highs might extend into the 780’s, and it might levitate into Thursday morning. But a move to new lows should be underway by Wednesday or Thursday’s close.
Higher highs Wednesday and Thursday might gain traction for a little more than a bounce, and for a little longer than this week. But not much on either score, probably only up to 810’00 or 825’00. That would help to refuel sellers for a bigger downleg. Speaking of which, if the decline resumes Wednesday, it should be obviously productive by Thursday (no third consecutive inside day), or else new lows could be delayed until next Tuesday.
Indicators and Internals.
3-minute RSI was almost at its highest overbought when Tuesday’s 774’75 high printed. The 1-minute RSI was already diverging negatively. Optimism must have been pretty thick, because the reaction down bounced off of the 768’50 sell signal. A dip one minute afte the cash session close also bounced, but only modestly, suggesting the optimism is tiring.
Wednesday’s opportunities.
A probe above Tuesday’s highs would begin gaining traction above 774’00. Its pattern would “only” target 780’00 and potentially also 787’00 (a retest of Sunday night’s high). But these levels have already been retested, so their retest again would be more likely to have higher targets in mind. A morning rally that isn’t derailed by early afternoon might be starting towards 810’00 or 821’00.
Under 768’50 has little if any relevant support above 755’00, so I would give its break a benefit of the doubt, but also a relatively tight stop. Assuming responsible risk control, these parameters are equally valid overnight, in the wake of Obama’s speech to Congress scheduled for Tuesday night.[/pay]