Trading Plan for 2/4

If Monday’s close were any lower… then it might have fulfilled an optimal hold-short setup. The setup still qualified, but it wasn’t optimal.

Pattern points… (Setups and technicals)[pay]
Monday’s downtrending session probed fresh lows through every timing window. Usually, trending to the final timing window either reverses or extends sharply. Monday did neither.

But Monday’s final hour did continue probing fresh lows. That doesn’t form any kind of reliable platform which might launch a durable bounce. If Tuesday’s open were to gap up, then its failure and reversal down to retest Monday’s 1733.50 cash session low would be likely — probably intraday.

Regardless of the intraday action, a second consecutive lower close would require at least a third eventually. That would be very bearish, because Monday’s probe under December’s prior lows must be rejected without delay to avoid a much deeper decline. Notice in the accompanying chart that the potential support of previous congestion is becoming scarce. The last two (circled red) signaled a trend change, and the third (circled green) is being attacked now.

Also notice in the chart how last week’s consolidation (2) was entered and exited by plunges (1 & 3). Troughing for a couple of days would be likely to rally at least back to the upper-end of last week’s range. Not troughing would be likely to extend down sharply.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Monday’s drop can be retraced immediately in a day. But there is nothing among my templates that allows a durable recovery to form without first probing fresh lows. Rallying first is still possible, so be careful if short, no matter how reliable lower lows are.[/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.