Trading Plan for 2/25
[pay]At the close (How the prior session ended)
Wednesday’s highs developed into a Double Top. The interim pullback’s consolidation was sloped upward, reflecting optimism. That’s not a healthy pullback. In this pattern, the optimism is sorely missed just when it is needed most – to break through the first high.
The mid-afternoon’s 6-1/2 point dive to 1099.00 was entirely appropriate, both in its timing and in its degree. The reaction’s bounce up to 1102.50 was also appropriate, retracing 61.8% of the Double Top’s interim consolidation.
But rather than resume dropping, the last half-hour bounced a little further, back up to the morning’s 1103.75 bias-up target. And that’s where the session ended, while RSI deteriorated and MACD diverged negatively.
Pattern points (And technical influences)
The pattern’s next leg should have been down, not higher. Its delay has consequences, typically that the next downleg comes with a vengeance. That might include a higher high, first – there’s room up to 1107.75 before buyers start gaining traction. But a break back under 1101.00 would signal the Double Top’s downleg had resumed.
A nearly immediate recovery above 1110.00 would put Tuesday’s drop behind us. It’s not the likely pattern, but it’s possible since Wednesday’s high probed 1104.00 “higher prior lows.”
Wednesday’s drop stopped optimistically short – if only 1 tick short – of touching its 1093.50 objective. The 1092.50 overnight low stopped short of touching the prior session’s overnight low. If a downleg attacks this area for a third consecutive session, it is likely to slice through prior lows. The potential downside could come off the table quickly Thursday if not attempted early.
Bottom line (My underlying premise)
Wednesday’s post-open surge originated during a no-bias environment. The objective was nearly touched, so the “no-bias” rally might avoid an otherwise required retracement. So, I wouldn’t sell early strength until it had reversed down enough. And I would consider getting long if sellers aren’t in control soon after the open.[/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.