Trading Plan for 2/5
[pay]Pattern notes.
The narrow ranging stands in stark contrast to the rest of Wednesday’s emotionality. It isn’t just that the 8-point congestion lasted two hours, when every minute prior to that was trending either up or down. More amazingly, the extended pause seems unaware of the steep 14-point dive that immediately preceded it, not to mention the 24-point drop from session highs.
Tuesday’s rally had room up to 834’50, which held through the close despite being probed intraday. The week’s bounce overall had room up to 849’50 where Wednesday’s rally peaked, before closing back under 834’50. A bigger downleg was avoided Tuesday by holding 830’50 support, where Wednesday afternoon’s consolidation ranged. Essentially, Wednesday’s buyers expended their energy without gaining any new traction, and without substantiating Tuesday’s buying effort.
Since Wednesday’s reversal was already punished by dropping into negative territory, the primary question is whether any punishment remains to be administered Thursday. If so, then the secondary question is whether any delay is needed. Overnight price action seems to be answering the questions, already having dropped to 823’25 – twice, retesting the lows now after an interim bounce to 829’00.
Yesterday’s Trading Plan included a chart depicting several items of interest, including this week’s lower prior highs at 826’50-827’00. This was Wednesday afternoon’s support, and major damage was already done by then. If not recovered Thursday morning, much bigger damage becomes increasingly likelier leading into the weekend.
Indicators and Internals.
The first drop overnight to 823’50 double-bottomed with a positive divergence that triggered a 6-point rally. Negative divergence at the rally’s peak triggered a retest of 823’50. Positive divergences into the low’s retest came too early to be effective, and have been ignored. A low here is unlikely.
Thursday’s opportunities.
More econ reports attack the market from 8:30 through 10:00. Normally I would expect price action to become paralyzed from anxiousness in the afternoon hours ahead of Friday’s Employment Situation report. But if Thursday morning’s Jobless Claims is a triggers trending, then that trending could extend while anticipating similar news Friday. Regardless, pre-open econ reports will need to reverse the overnight losses before I stop looking for new weekly lows. [/pay]