Trading Plan for 9/5

If Wednesday’s drop was pessimism… then Thursday’s drop could have been pessimism, too. Wednesday’s drop would have been defensive posturing ahead of the BOE and ECB policy statements. So, was Thursday’s drop more of the same hunkering down ahead of Friday’s Employment Situation report?

Pattern points… (Setups and technicals)[pay]
Thursday’s line in the sand was the same as Wednesday, 1997.50. Wednesday’s late-afternoon recovery barely recovered back above 1997.50, but from only 1996.25. Thursday’s recovery came from 1990.75. And it didn’t touch 1997.50 until after the cash session close.

That recovery leg extended higher after the futures close, touching 2000.50. But what earlier could have been considered pessimism was suddenly behaving pretty optimistically. The 10-point bounce was nearly as steep as the 14-point drop that had preceded it.

I’m skeptical that the late bounce ended the afternoon’s drop. It did recover back above Tuesday’s low, which the afternoon’s drop didn’t begin probing until the afternoon. Containing the probe to within a single timing window does suggest its sponsorship was weak-handed, the sort of sponsorship that appears at the end of a drop. But not quit recovering 1997.50 before the cash session close was 3 minutes away — let alone already closed — does suggest sellers were stronger-handed.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The reaction to Friday morning’s Employment Situation report should either test Tuesday’s 1994.25 lows, or else higher prior lows at 2005.50. Maintaining an open beyond either would be likely to trend in that direction. Being a Friday, the morning’s bias is likely to persist through the noon hour. And being a Friday, closing at a new high is predictive — as is not closing at a new high when it is in such close proximity.[/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.