Today the S&Ps rallied 30-points off Thursday’s low, and that’s the bad news.
Coverage for March 2
Pattern notes
S&Ps escaped Thursday's sell-off with less than a 4-point loss. Not bad recovery from an intraday 27-1/2 point loss. But not much to show for an intraday 31-point rally. Gaps down tend to expend more selling energy than they create, which was one reason for turning bullish at Thursday's open. Similarly, recoveries that don't finish positive tend to expend more buying energy than they create - especially when probes of positive territory are rejected, not to mention closing under the prior afternoon's lows.
Indicators and internals
80% more NYSE down volume than up volume produced only 45% more declining issues than advancers. Friday's market is obligated to reward Thursday's buyers for their relative productivity, even if only momentarily. That obligation can be rendered moot by gapping down under prior relative lows, which isn't much of a loss from Thursday's close, but that's not actively signaled.
External forces
After Thursday's heavy economic calendar, Friday offers only one item. And its timing is a half-hour after the open, which tends either to reverse or to accelerate any initial trending. There might be some confusion among market participants bracing for the monthly Employment Situation report that is normally released on the first Friday of the month - it's delayed one week. Also, Fed Chair Bernanke is scheduled to speak, but not until the evening.
Friday’s Trading Plan
The impending weekend adds a new dynamic to the picture that wasn't influential earlier this week. Almost any attempt to resume the decline might be a self-fulfilling as longs crowd the exit door before two days of illiquidity. The gap down to Thursday's open still needs to be retested, regardless of its eventual resolution. And that resolution could be down, very big, if Thursday's open first fulfills its obligation to reward Thursday's buyers for their relative.
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