Trading Plan for 3/2

[pay]Pattern notes.
Friday’s gap down was retraced into the afternoon, back up to Thursday’s ~750’50 intraday lows. This leg’s degree and duration prevented one crash setup from forming, in that a session-long decline could have attracted new sellers. Ultimately the bounce was itself retraced to close 1 tick under the morning’s 733’00 low.

The cash session close was a couple of points higher around 735’00, but the pre-open low’s “new Globex trend extreme” at 729’50 was several points lower (dashed line on the bottom chart). Each will now compete for attention. Upon neutralizing the magnetic attraction of one, the other point’s attraction will become relatively stronger. Do the math. If a probe of either point is maintained through a relevant timing window, then its momentum could be unstoppable. Do the physics.

The near-term bullish case would recover from an early test of 729’50 – preferably not a shallow test, the scarier the better. Two consecutive weekly declines have expended a lot of selling pressure, while also fulfilling the required retest of last year’s lows. Almost any hesitation after probing lower lows could result in a massive short-squeeze and multi-session rally. Its mission would be to probe this year’s “higher prior lows” up to 800’00 or 821’00.

Its mission would, of course, be futile. Also futile would be a firm open Monday that struggles to recover above 740’00. Then Friday’s pre-open low takes over as the main attraction. The two consecutive weekly lower closes will have created more selling pressure than were expended. The prior week’s drop had already triggered a more substantial downleg underway. Friday afternoon’s retracement rejected the morning’s bounce, and confirmed Thursday’s narrow breakout close under Wednesday’s low.

Although one crash setup didn’t form, another is well on its way by closing negative in 9 of the past 10 sessions. The “Rubber Band” has been stretched so far that stretching it any further would snap prices lower. Not stretching the Rubber Band any further would snap prices back up. The setup is on the cusp of triggering, and a substantial drop would confirm it had already triggered.

Regardless of the near-term path, the eventual destination remains unchanged: sharply lower lows. An ugly open Sunday night would likely be on this path, until proved otherwise. A close back above 743’00-745’00 would trigger a “Gotcha!” setup’s bear market bounce. The alternative to triggering the Gotcha could be a close that is dozens of points lower. Or more.

Indicators and Internals.
Friday’s intraday bounce alleviated the morning’s oversold technical condition. It also helped to soften the indicators’ readings when the afternoon’s drop probed new session lows. The higher lows didn’t have enough time to enhance the vulnerability to rallying, not at this stage of the pattern. But a recovery would have left no unfnished business below.

Monday’s opportunities.
The econ calendar is normally empty when the week begins, but not today. One report pre-open at 8:30 is followed by two more 30 minutes after the open at 10:00. There are higher profile reports than these, and the balance of the week is littered with them. Much more relevant than any of them at this writing is Sunday night’s open. See you then.[/pay]