Market Wrap
Trading Plan for 5/19
[pay]Pattern notes.
A the close of last Wednesday’s reversal setup we already knew the template called for a corrective bounce Thursday. Of course, we didn’t know that “correction” would end the day above Wednesday’s high, let alone take the nine-week old rally to new highs before Friday’s open. Friday’s net gain was nominal, but correction? Really?
One of my last investigations into Elliott Wave theory landed me with an analyst that believed such things were possible. I had already developed my “pivotal high / actual high” label which considers the higher high to be no more than a retest. 
But I had not considered that last, failed upleg to be a correction, so much as part of a larger topping pattern. Frankly, I don’t see much of a difference, since the upleg in either description serves the same purpose of refueling sellers.
Before Wednesday’s reversal setup closed we knew one other thing, that the setup’s reversal would resume at Friday’s open. This qualification was fulfilled by a morning-long decline from the first tick. The afternoon’s rally retraced the decline, but that’s all. Friday’s pre-open high might still be retested although that’s not required since it was itself a retest of May 2’s pre-open high. But if sellers aren’t obviously in control and productive by Monday’s close then the bearish scenario would suffer greatly.
Indicators and Internals.
Friday’s NYSE down volume exceeded up volume, yet advancing issues outnumbered decliners. This positive divergence normally obligates Monday’s session to reward Friday’s buyers for their relative productivity. 
If Friday’s expiration undermined the internal spread’s integrity then Monday’s internals should be similarly affected. MACD & RSI meanwhile deteriorated into the afternoon’s recovery, which I take more seriously since the indicators were so correct at Friday’s bottom.
Monday’s opening setup.
Monday’s open might still be under the spell of expiration – perhaps Friday’s session was so under its spell that S&Ps will gap up above Friday’s ESm 1429’50 pre-open high, which would be very likely to extend sharply higher. But if sellers only let buyers retest 1429’50 and fulfill the internals’ positive divergence, then a dip from there back into negative territory would be extra vulnerable to extending down sharply. A gap under Friday afternoon’s 1418’00 low would simply reject all of the afternoon’s rally and its momentum. Any lesser weakness at or before Monday’s open would still have potential for retesting Friday’s pre-open high.[/pay]
Trading Plan for 5/16
[pay]Pattern notes.
A session’s two most unpredictable timing windows are the open and its close. Thursday’s close was a 7-point surge to ESm 1425’00. As it developed I noted that it wasn’t likely to be sustained, and four hours after Thursday’s cash session close it has been retraced entirely.
There is a flip-side to moves that develop during a window of unpredictability: irrelevance. This means that if Friday’s open were to gap down back to the 1418’00-1419’00 origin of Thursday’s last-minute surge, the gap back up to Thursday’s 1424’25 close won’t necessarily require being filled. And it probably won’t require being filled if a gap or spike down can exit the 10:15-10:30 timing window back under the last-minute surge’s 1418’00-1419’00 origin – not coincidentally also back under Thursday’s highs.
There are two windows for a downleg to begin from Thursday’s reversal setup. If Friday’s open doesn’t begin sliding almost immediately, then Monday’s open should gap down sharply. Not much later into the week starts to run into the potential seasonal bullishness ahead of Memorial Day weekend, and potentially a brief detour up to 1445’00.
Indicators and Internals.
The ratio of NYSE advancing issues to decliners didn’t keep pace with the ratio of up volume to down volume. This obligates Friday’s session to reward Thursday’s sellers for their relative productivity. MACD & RSI had diverged negatively into the cash session close, which the 6-point dip since then is already reacting to.
Friday’s opening setup.
Friday is expiration so beware of false starts and short spurts. This would be especially true during the opening sequence before 10:15. The morning’s econ reports play into this environment with Housing Starts at 8:30, followed by Consumer Sentiment at 10:00. This being a Friday, the morning’s bias signal could persist well past the noon hour.[/pay]
Trading Plan for 5/15
[pay]Pattern notes.
A gap up, extending to higher highs, and the entire session spent in positive territory. What’s not positive about that? These three factors don’t reflect the afternoon’s 2-hour tumble that shaved off 14 points from the ESm 1421’50 high. The net 5-point gain pales in comparison.
The intraday pattern is reminiscent of a slide you’ve probably seen me use of Dec S&Ps (shown nearby) in my MACD & RSI Basic Skills tutorial. The early afternoon rejection of the gap up morning had stunning results – that was Oct 11 last year when the bull market peaked while retesting July’s prior highs. 
There are some differences from now, but not substantial:
October’s was a Thursday and this was a Wednesday, which I consider more similar to each other than if one were a Monday or Friday. October’s actually probed prior highs but this one nearly did. One standout might be that October’s reversal turned negative on the day and ended sharply lower. But that difference might be bullish, because Wednesday’s positive close left a lot of selling pressure on the table for Thursday’s open to absorb.
Indicators and Internals.
At Wednesday’s close MACD & RSI diverged positive only the 1-minute chart and made higher lows on the 3-minute chart. That’s exploitable by buyers, and I will judge them by how well they do. That was at 1408’00 and it didn’t prevent the Globex open’s dip to 1405’00, which has since recovered back to as high as 1408’00. Meanwhile 75% more NYSE up volume than down volume produced only 50% more advancing issues than decliners, obligating Thursday’s session to reward Wednesday’s sellers for their relative productivity.
Thursday’s opening setup.
Two econ reports are due one hour before the open, another 15 minutes before and then one more 30 minutes after. Bernanke begins speaking while the market is opening. There’s on shortage of catalysts. Wednesday’s close back under the open’s gap already indicates distribution, so a bounce is likely also to fail. The most bullish hope might be to initially drop and get selling out of the way. Then the most bullish move would be to recover back above Wednesday’s 1409’25 open. I will believe it when I see it, but there’s not much bullishness to believe otherwise.[/pay]
Trading Plan for 5/14
[pay]Pattern notes.
Just failing to close above the ESm 1406’00 area Tuesday’s indicated that buyers didn’t gain traction. The cash session close just under 1403’50 almost indicated that sellers were gaining traction in their place, but under 1399’00 would have sent a clearer message. S&Ps firmed back to 1405’00 after the cash session close, which I regard as being too little and too late to indicate actual strength.
That said, a rally attempt is still possible at Wednesday’s open. I suspect that Tuesday afternoon’s false break offered a glimpse of how that would resolve. The potential for another rally attempt relies almost exclusively on Tuesday’s pre-open high at 1410’75 that wants to be retested. Gapping or spiking down through 1397’00-1399’00 would shift the balance to sellers, at least to retrace Monday morning’s no-bias rally back to its 1387’00 origin.
Indicators and Internals.
MACD& RSI were mixed to higher into Tuesday afternoon’s false breakout, after having been dull and listless since mid-morning. Internal spreads were evenly weighted at 12%, both for NYSE up volume vs. down volume, and also for advancing issues vs. decliners. Wednesday’s market isn’t obligated to reward either buyers or sellers for any outperformance.
Wednesday’s opening setup.
CPI isn’t the only econ report due but it is the highest profile. EIA Petroleum Status an hour after the open will be of interest with Crude Oil trying desperately to maintain a break above Friday’s 126’20 high (click here for an update in Crude’s comments section). Price action will very soon become heavily influenced by position jockeying ahead of Friday’s expiration, so trending probably can’t be delayed past Wednesday’s close unless it will be delayed through the weekend.[/pay]
Trading Plan for 5/13
[pay]Pattern notes.
Monday’s path of least resistance (yes, pun intended) was up. That didn’t prevent the open from dipping to test the bias-down signal. And two consecutive no-bias signals didn’t prevent S&Ps from extending to higher highs. Optimism’s reign was so supreme that sellers couldn’t regain traction despite the bias-up target being met, and not being improved through the session’s last hour.
It is difficult to reverse an uptrending day that enters the last hour above noon hour highs. It’s also difficult to extend higher during that last hour as we saw. And generally it is difficult to avoid reversing down the next day. We’ll see. Monday’s last update here noted there was room up to the ESm 1406’00 area just as noise – the Globex session high at 1406’50 reacted with a 3-point drop and no net gain as of midnight.
Let’s be clear: The bias-up signal puts into play a modestly higher target, but high enough to start a domino effect that could probe new highs above 1427’00. 
Timing is critical to maintain the near-term bearish case.
Indicators and Internals.
The nearby 3-minute chart depicts Monday’s regular session, and shows MACD & RSI diverging negatively into the last hour’s highs. That’s not a sell signal, but it does indicate that a higher high would be launched from a base to weak to sustain it. Generally the only way to overcome that would be to gap up and not look back while extending higher.
Tuesday’s opening setup.
Several econ reports are due pre-open, and another 30 minutes after the open. The nearby chart identifies the ESm 1406’50 overnight high as of midnight, and its possible resolutions. Almost any higher would trigger the morning’s bias-up targeting 1410’50 and possibly 1414’25.
Otherwise, failing to improve would allow retracing one or both of the no-bias rallies: either a temporary pullback to 1397’00 where the afternoon’s no-bias was signaled, or a break under 1394’00 that extends down to 1387’00 where the market stood when signaling the morning’s no-bias. Any lower than that would put into play a retest of Friday’s pre-open low under 1382’00.[/pay]