Trading Plan for 5/11

Thursday’s gap up tried… to fulfill mainstream expectations for a short-squeeze. Its potential was deconstructed in the morning’s First Trade blog post. But the open challenged Wednesday’s high anyway. Wednesday’s high won, and the session only ranged sideways.

Pattern points… (Setups and technicals)[pay]
My fear was that Thursday’s session would range choppily, absorbing the recent shock to the system. That’s what we got, with only a several smaller moves. They were accompanied by some less reliable setups that did play out, and a couple of false breaks that did not.

Usually, one session is enough to absorb the prior sessions’ cumulative shock.

In fact, the volatility may have already resumed into Thursday’s futures close. The afternoon’s 10-point slide to a fresh low under 1352.00 was retraced to 1354.50 at the cash session close, and then up to 1358.50 several minutes later.

Thursday’s session was “ineffectual optimism” — gapping up, spending the entire session in positive territory, and probing prior highs before closing under the morning’s high. So, immediate weakness at Friday’s open would be likely to trend down, presumably resuming the decline targeting 1332.00.

Otherwise, recovering 1356.75 through the open would be unlikely to resume the decline before late-afternoon, if at all before next week. And above 1360.50 would target 1366.00 or 1369.00.

[/pay]What’s Next… (Outlook and opportunities)[pay]
As always, the post-close surge was irrelevant. But unlike most instances, we already know that. JPM has announced a significant mark-to-market loss, taking S&Ps down 10 points to 1348.25.[/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.