Trading Plan for 2/6

[pay]Pattern notes.
Thursday afternoon’s price action was waiting for a shoe to drop. Not necessarily another shoe, just any shoe. A reaction off of the 816’50 target accounted for only the first several points of the 20-point reversal on mark-to-market rumors. It’s a good rumor – accurate pricing, no matter how horrible, is at least a starting point to recovery. At least 10 points of the next leg up to 848’00 was also due to the rumor.

That was pretty much it for the day. The support of a two-hour consolidation was scalloped to produce a blip-up that reacted down 11 points. But that was just a move from the range’s upper-end to its lower-end. The session’s remaining hour was less volatile than the two hours that had preceded it.

The rumor saved the session from the open’s drop extending into the next downleg. The reaction stopped short of saving the pattern from its eventual resolution down. A third consecutive close back under 834’50 would have confirmed this. Gapping open under 830’50 or 826’50-827’25 would make up for the delay. But a recovery maintained above Thursday’s highs could trend higher throughout the day, into and out of the weekend.

Indicators and Internals.
MACD & RSI diverged negatively at Thursday’s late high. The reaction down didn’t find technicals firming, which obviously hampered the last hour’s last-minute bounce attempt. A test of the range’s lower-end is likely, regardless of its resolution.

Friday’s opportunities.
Afternoon ranges often continue ranging through the following morning. That would be a neat trick with the Employment Situation report due pre-open. Trending out of an afternoon range is begun by gapping beyond the range. That’s more likely considering the gravity of the news. So our first decision will probably be whether to ride the reaction, or to expect its gap to fail and reverse back into the range.[/pay]