Trading Plan for 3/5

[pay]Pattern notes.
New session highs in the last hour have no excuse for not extending higher, let alone for reversing down. Well, there is one excuse: false breakout. The 723’75 high was probed by 1 tick before reversing back under its 720’00 pullback limit, triggering a plunge into the close.

The plunge stopped at 708’25 when the futures session closed, 4 points under levels that accompanied the cash session close. Therein lies the rally’s salvation. The cash session close almost retraced back under the open’s 710’50 high (circled on the nearby chart). Almost. The morning’s 713’00-714’50 highs failed to hold (also circled on the chart), and that’s not bullish. But failing to hold the open’s peak would have been definitive.

The proxy for closing under the open’s peak is to gap down under its reaction low. This happens to be the session’s 699’00 low, and it is under attack overnight. Gapping under Wednesday’s low is the first step; the second step is to extend down sharply to compensate for the delay. Objectives would be the gap back to Tuesday’s 695’25 and 689’50 close(s) and its 681’50 overnight low. A close back above the decline’s 693’50 target would continue to be constructive to forming a bottom.

High-profile econ reports due before the open could reverse the overnight losses pre-open. This remains possible because the cash session close held above the open’s peak. Even the futures session held above the 708’00 level that had been critical intraday – 708’00, which had held as resistance through every relevant timing window to undermine all other rally efforts. Recovering at the open would target at least a retest of Wednesday’s high, and potentially resume the rally. A bear market rally, instead of something more substantial that could develop if the unfinished business below were neutralized first.

Indicators and Internals.
Both 1-minute and 3-minute RSIs diverged simultaneously at 3:30 Wednesday when the last hour’s peak was being retested. Time was short, so justice was swift. Currently, RSIs have continued deteriorating into the overnight decline. Their simultaneous oversold reading just accompanied an attack on 700’00, and improving MACD helped to trigger an oversold bounce. But the simultaneous oversold RSI suggest the bounce will fail, keeping alive the potential for gapping down under Wednesday’s 699’00 low.

Thursday’s opportunities.
Jobless Claims may be higher profile than normal, with February’s Employment Situation report being one day away. If its reaction aids a recovery back above Wednesday’s 699’00 low then the balance of the session could range sideways while waiting for Friday’s report. A recovery above Wednesday’s 710’50 opening peak would at least target a retest of the 724’00 area. The afternoon will become vulnerable to ranging narrowly ahead of Friday’s report.[/pay]