S&Ps’ bears dodged a big bullet at Thursday’s open.
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Coverage for February 23.
Pattern notesThursday's Trading Plan noted that "one more probe of higher highs, and then its failure, would offer an effective origin for a new decline." The argument that stocks are topping dodged a big bullet with Thursday's failed new highs. The only element missing from the topping argument continues to be a signal that momentum has actually reversed down. A new low close for the week would suffice.
Indicators and internalsAlthough S&Ps only ranged sideways through the afternoon, Thursday's internals were distributive. The negative spread between NYSE up and own volume was smaller than the negative spread between advancing and declining issues. The session already closed at a loss, so Friday's market isn't necessarily obligated to reward Thursday's sellers for their relative productivity. But that's more likely than not.
External forcesFriday's economic calendar is empty (save for a couple of Fed Presidents speaking). So long as S&Ps remain within the past week's range, it's unclear whether this rally still thrives on news - and suffers without. Intraday reactions are suggesting the opposite, but that may be moot regardless of whether the news relationship is no longer valid.
Friday’s Trading PlanNo news might be bad news if S&Ps are already weaker at Friday's open. Buyers that consider a rescue might be unable to find and focus on a news event that can be scapegoated for lower prices. Buyers won't be able to hope for a new item's favorable reaction to trigger a recovery, so a weak open could snowball throughout the day. Volume is a wild card since it's pace has been depressed all week, and a big sell-off (or trending in either direction, for that matter) would be difficult if liquidity hasn't improved.
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