Trading Plan for 5/10

[pay]About that close (How the prior session ended)
There was no bullish setup coming into Friday’s last hour. Dips to 1108.25-1110.00 had bounced repeatedly (highlighted red), only to have failed when relevant timing windows closed. Since Friday’s last hour is a product of the session’s earlier influences, 1108.25-1110.00 was going to hold as resistance into the close. In fact, fresh lows probed 1100.50, and 1108.25-1110.00 held its last-minute reaction.

Pattern points (And technical influences)
Both 1-minute and 3-minute RSIs made lower lows along with price during the last hour (highlighted yellow). Slightly lower readings don’t inspire the confidence to be predictive. But it’s probably not a bottom anyway. RSIs should be improving on lower lows at this stage of the pattern if the afternoon’s slide were ending.

The morning’s Ascending Triangle (outlined in red) was initially productive, recovering into positive territory. Then a dip probed its range before noon, which was also productive, recovering to a higher high. At this stage, there was no reason to revisit the Triangle, not unless the intent were to extend below it.

Another dip after the noon hour returned back to the Triangle. If its probe was too shallow to be sure, then later probes removed any doubt. By the way, the afternoon’s earlier shallow probe is now known to be excessive optimism. So are the later afternoon lows, which have no other reason not to be retesting Friday’s low.

About last week… (The silver lining to Thursday’s plunge)
The administration has ruled out a cyber attack as the cause of Thursday’s plunge. Whew, that’s a relief. I was very concerned. Not that it might have been true, but that the administration might actually have believed that. A fat fingered typo is at least more plausible. Just don’t as why it happens so rarely, if ever.

High-Frequency Trading algorithms are another scapegoat. Their involvement adds to market liquidity, which wasn’t distasteful during the relentless rally. A number of them did cease trading intraday, which might have exacerbated the drop. Of course, this must also be factored into the plunge’s brevity, recovering just as quickly back to where it began.

Plunges happen so rarely that those outside the industry think they are problems with the system. They are products of the system. A plunge is rarer than a sudden spike up, but one has to be rarer than the other. And plunges make up for their rarity by being more severe.

The market has behaved normally. First, by waiting so long between plunges. Secondly, and more important to a normal market, was the immediate reversion back up towards its mean. None of which is to say that the correction has ended or that a bull market will now begin. But Thursday’s action did tell us that wherever the market goes next, it’s where it should be.

Bottom line (My underlying premise)
Friday’s 1090.75 low and Thursday’s 1056.00 “V” bottom on one side. A substantial corrective bounce, perhaps new highs on the other. Sunday night will be interesting with their being promised a Greece bailout deal, and with the Gulf oil spill’s solution apparently having failed. Recovering 1131.00-1132.00 despite the news would be bullish. For now, however, the burden of proof is on bulls. [/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.