Trading Plan for 2/26

[pay]Pattern notes.
Wednesday afternoon’s recovery extended to new session highs probing 778’00-779’00. This area held a test previously at Monday’s open, which resolved poorly. Retesting it again may have chipped away at its resistance, and that will come in handy if it’s ever tested again. Meanwhile, however, the chipping proved to be ineffectual since its resolution was a negative close.
The close wasn’t just negative. It was nearly 20 points under the last hour’s high, new session highs that didn’t even print until the last hour. The reaction down fell back under the afternoon’s bias-up target and signal, and back under the prior three sessions’ highs, as is depicted in the nearby chart.

The chart also includes a purple uptrending support that has essentially defined the recovery from Monday’s low. If Wednesday’s 751’25 low is the trend’s “key” low (the low following Monday’s 739’75 actual low), then its break would signal a move to new lows underway. A drop could expend a lot of energy before actually touching Wednesday’s low, energy that might be sorely missed just when it is needed to break lower. An overnight bounce has only widened that margin.

A gap under 751’25 might be the only way to resume the decline before Thursday afternoon. Wednesday morning’s “pivotal” low (the low prior to the actual low) was later touched again, so an eventual test of 751’25 is required eventually. Break it, and the market should find little if any obligatory support to inhibit new lows, and nothing to prevent it.

As for turning bullish near-term, a gap above 771’00 would be compelling, and would need to extend above 774’00 without much delay. The corrective bounce this would trigger can refuel sellers up to the low 780′s, and produce a really strong downleg.

Indicators and Internals.
S&Ps continued dropping after the cash session close. There’s a bounce underway from there, but probably not a durable one, since both the 1-minute and 3-minute MACD & RSIs were printing their lowest oversolds into the price low.

Thursday’s opportunities.
Durable Goods and Jobless Claims at 8:30 precede the cash session open, then New Home Sales comes at 10:00. This is the first day all week that no one is scheduled to promise banks won’t be nationalized. It will be interesting to see how the sector performs without cheerleading, since their gains have helped to delay the broader decline’s resumption.[/pay]