Trading Plan for 2/9

[pay]Pattern notes.
Fridays are generally incapable of producing a session-long rally. Even if the open gaps above Thursday’s prior high, intraday trending usually ends soon after the noon hour. For that reason, there is nothing to be read into Friday’s early-afternoon peak. For that reason, and also because the early-afternoon’s peak wasn’t rejected. It was retraced back under the noon hour’s high, but only momentarily before recovering to session highs.

To repeat: After the last-hour dip fell from new session highs, it was recovered back to the prior high. This 6-point range now has more relevance than the open’s 14-point surge. The recovery didn’t close at new highs, despite probing new high territory. Instead, a lot of buying pressure was expended, and it wasn’t effectual.

This is only forms the basis for a potential sell signal, not the signal itself (parameters are described below). But it is in-line with the ongoing expectation for the next major trending to be down and not up. The nearby chart shows last week’s rally (green bars) as being contained almost entirely within the prior week’s range (red bars). To repeat: After the prior week’s dip had retraced back to the previous week’s close, last week’s rally retraced the dip. Sound familiar?

Last week’s rally emerged from increasingly optimistic investment opinion. The reinforced opinions could be a self-fulfilling prophecy that extends the bounce. If the optimistic opinion is right, then why didn’t the week-long rally accomplish no more than to retrace back to the prior week’s highs? Higher highs might be credible for extending higher, but the market hasn’t yet offered that setup.

Last week’s rally might seem more relevant to us because I was focused on the support of prior lows (yellow bars on the nearby chart) being chipped away sufficiently to finally allow the next downleg. This pattern doesn’t resemble any bottoming template, and an eventual retest of November’s low (red highlight) remains likely. A bigger detour might yet develop, but that is no more likely after last week’s price action than before.

Indicators and Internals.
MACD & RSI didn’t signal a specific resolution to Friday afternoon’s ranging. But the last-minute return back to session highs should have had some technical confirmation if the market intended to continue trending higher. Anything short of gapping up Monday would have difficulty extending higher past the first hour.

Monday’s opportunities.
Friday afternoon’s range recovered in interim dip to close back at session highs. The last hour’s recovery achieved nothing that hadn’t been achieved already intraday, wasting the recovery’s selling pressure. Maintaining an immediate break above 871’25 would have potential to 881’00 (the bias-up target is halfway there). But a break under the afternoon range’s ~860’75 interim low (the bias-down signal’s proxy is a couple of points higher) would trigger a pullback that could gain traction for a more substantial intraday decline. Econ reports won’t play a factor, but the stimulus bill’s debate goes forward. [/pay]