Trading Plan for 2/5
[pay]At the close (How the prior session ended)
Thursday’s open reversed Wednesday’s last surge by gapping under its afternoon low, triggering a session-long decline. Wednesday’s last surge was contained within the afternoon’s range, but that didn’t stop the setup from trending down into Thursday’s close.
Bounces throughout the decline were relatively shallow, none probing a prior high. Thursday’s second-to-last hour was the most serious bounce attempt, touching the 1069.50 level that earlier would have called off any shorts. But it failed to recover, and launched a 10-point dive to 1059.25.
Pattern points (And technical influences)
The corrective bounce from last Friday’s low stuck to its template, except for resuming the decline before Thursday afternoon. A session-long decline reflects pessimism, and Thursday’s particular trending does, too. Starting the decline ahead of schedule certainly isn’t optimistic.
None of which is a buy signal. But it does argue for staying on guard for a bottom. Otherwise, there’s nothing bullish about greeting the Employment Situation report from under prior lows, especially on a Friday.
Unless Friday’s open is a gap up above Thursday afternoon’s 1069.50 high, the decline should resume to lower lows. A favorable reaction should have already reversed down by the open, or be well on its way.
The next major target is 1056.00, so it is likely to be defended with gusto. The greater the optimistic hesitation there is in approaching it, the more likely it will break sharply. Lower support is few and far between, essentially every 10-11 points at 1046.25, 1037.00 and 1026.00.
Bottom line (My underlying premise)
There was nothing bullish about Thursday’s decline. And no durable bottom can form without first probing lower lows. Overnight action tends to be subdued ahead of the Employment report, but the Employment report isn’t often preceded by the biggest decline in months. And being a Friday, the morning’s bias signal should persist well through the noon hour. [/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.