Trading Plan for 3/7
A funny thing happened on the way to recovering… Thursday’s uninterrupted rally was interrupted Friday. No single dip Thursday (not even Wednesday night) had attacked a prior low, reflecting excessive optimism. That optimism was sorely missed, just when it was needed most – upon testing resistance at Tuesday’s prior highs. [pay]
Pattern points… (Setups and technicals)
Friday’s Employment Situation report reflected an improving jobs picture. Jobless rates fell to under 9%. The knee-jerk reaction up ended within 2 minutes. The obvious impression is that an improving jobs picture is already discounted. The eventual reaction down fell 20 points. What if there’s a hiccup in the improvement?
Slightly less obvious is that the employment hiccup is already expected. The market is a discounting mechanism for future fundamentals. Just as the rally has been discounting economic improvements like Friday’s report, a decline would anticipate poorer results to come.
A distinction with a difference? Either way, the market would no longer attract buying that absorbs selling, i.e. more buyers than sellers. Whether or not selling pressure (supply) were to increase, buying pressure (demand) would decrease. Price falls either way.
The distinction’s difference is that one scenario allows for the recent 1343.00 high’s retest, while the other scenario would simply break back under the 1300.00 area to trigger a new downleg. The current trading range has formed an Ascending Triangle (dashed lines). The pattern may be “complex” because its touch points don’t include the rally’s trend extreme (circled red).
Breaking above resistance would confirm the pattern is a Complex Ascending Triangle. Its normal resolution is a quick detour to a new trend extreme (1351.25 or 1361.00), followed by an equally quick drop back to and through the triangle. Breaking under uptrending support would at least target the 1300.00 area, whose break would simply trigger a new downleg.
What’s Next… (Outlook and opportunities)
Repeatedly testing Friday afternoon’s 1312.00 bias-down target (underlined green) chipped away at its support, but never broke it. Settling there would have formed a sort of “ineffectual pessimism” to trap shorts. Their pent-up buying pressure could have helped the next session start rallying.
Instead, a surge into Friday’s close (highlighted yellow) already expended that buying pressure. And that buying pressure didn’t gain any traction for its efforts. Friday’s 1320.00 close was still testing the morning’s 1319.50 bias-down target as resistance (underlined red). The late bounce also neutralized an attraction back up to Thursday’s 1319.25 gap open (circled green).
Time heals all wounds, but a weekend often suffices to overcome wasted efforts. Exiting Monday’s open back above 1323.25 would attack Thursday’s highs. Otherwise, a break back under 1315.50 would resume Friday’s rally to fresh lows.
Neither move must extend any further than their initial targets. But extending further than their initial targets could answer whether a Complex Ascending Triangle was breaking higher, or if a new downleg had begun.
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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.