Trading Plan for 2/4

[pay]Pattern notes.
The optimism out there is getting pretty thick. It reached its thickest Tuesday at 2:00. But for a couple of early probes into negative territory, the balance of the session had developed entirely in positive territory. The open had gapped up to probe Monday’s high, which was probed again before the noon hour.

Sellers were less interested in the second probe’s failure than in the first, opening the door to a higher target at 834’50. The higher target extended 5 points higher – not from new buying pressure, just existing buyers stretching themselves optimistically thinner. The extended optimism was retraced entirely through the close. The rest would become jeopardized under 830’50.

Breaks under 830’50 might still be absorbed and recovered before becoming a new downleg. But there is room up to 849’50 before considering something more substantial than an extended bounce is considered. Several of the more prominent reasons are illustrated on the nearby chart.

– Prior lows are contained within the red square. The only support this area can offer anymore is its own lows. And that support is only temporary.

– The same range containing the prior lows never offered much support when tested from above. See the green highlight to the right? This is “lower prior highs” that was created Monday and Tuesday. The earlier range’s “lower prior highs” were ignored on the way down, so Tuesday’s rally acknowledged it as resistance.

– Circled in green is the last consolidation to produce a higher high. Its “lower prior highs” (not indicated) were acknowledged only briefly on the trip back down. Tuesday’s high peaked upon retracing 61.8% into the consolidation, a healthy correction.

Any recent strength can be attributed either to resolving unfinished business above so that selling can be less inhibited. This undermines any bullish theory of accumulation. And meanwhile there remains unfinished business below, most immediately Monday’s pre-open “new Globex trend extreme” that requires being retested intraday.

Indicators and Internals.
Technicals left no signals outstanding at Tuesday’s close. But at 10:33pm there has been significant deterioration after several hours of trying unsuccessfully to recover above 834’50.

Wednesday’s opportunities.
Back above 834’50 would have potential to attack 850’00. Meanwhile, “lower prior highs” around 826’50-827’00 (the chart’s green highlighted area) is going to try stopping the decline’s resumption. When it fails, the decline resumes. There may be some residual support to slow the selling, but 813’00 should be a big attraction. That might be enough selling for one day, unless 811’25 were also broken as support. The econ calendar remains active, and it’s only getting more so on Thursday and Friday.[/pay]