Trading Plan for 2/26

If Monday’s plunge was sellers pouncing from the shadows… then yesterday’s comments in this space were correct, that Friday’s bounce allowed sellers to rest. So, do sellers need another rest, are did the plunge reinvigorate them to greet Tuesday head-on?

Pattern points… (Setups and technicals)[pay]
After Monday’s plunge, it’s difficult to argue with Friday’s rally being anything more than a corrective bounce. And it’s difficult to argue with Wednesday’s trend change signal, since its low was just broken.

The question now is whether the trend change is ending, or just getting started.

Sunday night’s extra trapped buyers, and Monday morning’s trapped buyers, along with the morning’s very late rejection of its bias-up parameters… Either buyers are being given so much extra rope to hang themselves with, or sellers are being dragged along only grudgingly.

Monday’s plunge probably already rewarded sellers that absorbed the overnight gap up and the open’s attempt to extend higher. But more important is how recently there was such excessive optimism, as Monday’s plunge confirmed. It reflects how much buyers have yet to recognize they’re finished.

That very recent optimism may entice buyers to view this as the cheapest prices in four weeks. That should combine with Bernanke’s post-open testimony (see Econ Calendar for details) to form a corrective bounce. If a bounce doesn’t gain traction, or if the drop were to extend too far overnight for Bernanke to be consequential, then that late selling was just patience… Patience, by very strong-handed sellers.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Post-close is already probing lower to test 1482.00, with potential to 1488.00 and 1471.25. But back above 1488.75 would suggest a corrective bounce underway with potential to 1502.00.[/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.