Trading Plan for 3/8

[pay]About that close (How the prior session ended)
The 1138.75 target was met as Friday’s last hour began. This measurement was the highest calculable target from the opening dip that held its 1125.75-1126.75 pullback limit. Proof of the target’s relevance came not from peaking precisely there, but from its reaction’s dive.

That dive could have broken under 1135.50 to trigger a much deeper slide. It would have been pretty deep, and it would have neutralized the overbought condition. The dip only touched 1135.50, and only 1-minute RSI became oversold. So, Friday’s 1138.75 high should be retested next, since RSIs were overbought there. The retest is likely to hold, since the 3:10-3:20 window trended down.

Pattern points (And technical influences)
Thursday’s last-minute optimism had reflected optimism among weak hands. That’s potentially bearish from a contrarian perspective. To be sure, the Employment Situation’s entire spike up was retraced entirely an hour later. But the overnight gains were preserved, and the cash session extended higher.

The entire upleg since Feb 25’s gap down has been characterized by optimism – gaps up, shallow dips, narrow consolidations. The gaps represent unfinished business below. “Lower prior highs” like 1122.50 and overnight lows like 1114.00 will attract price down. But not until there is a close under a prior low, which last week’s consolidation avoided.

A first step down would be to reject Friday afternoon’s rally, because its 1134.00 origin was in a narrow extended trading range. The minimum objective of gapping down under 1134.00 at Monday’s open would back to Friday’s 1126.00 lows. But it would be one giant step closer to 1122.50 and 1111.00.

An alternative first step down would first retest Friday’s 1138.75 high. But that’s also the next step to extending higher. The difference would be in whether 1141.00-1143.00 held as resistance. Extending above 1145.00 would target 1153.00, new highs for the year.

Bottom line (My underlying premise)
Friday’s test of January’s “higher prior lows” could have held as resistance, and left pent-up buying pressure to resume the rally Monday. Instead, Friday’s highs retraced into the range at January’s highs. All of Friday’s buying pressure was fulfilled intraday. A probe of January’s highs would be only a formality if the rally extended any higher through any relevant timing window Monday – there’s no unfinished business above, so extending higher would be bullish. And having no unfinished business above, a sell signal would be credible if triggered. [/pay]

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.