Trading Plan for 5/13

[pay]About that close (How the prior session ended)
A surge into Wednesday’s last hour quickly met the afternoon’s 1171.25 bias-up target. Buying pressure was satisfied and there was no other unfinished business above. The breakout attempt lacked momentum since the last hour was entered from below two prior highs (circled red), instead of from under just one.

So, the market dipped. There was no distribution at the high to trigger a downleg, just room for a reaction down to 1167.75. And that’s where the reaction bottomed, until the bottom of the hour had passed, when trending was unlikely to begin. The last half-hour eventually firmed to close back at the session’s prior highs (yellow highlight).

Pattern points (And technical influences)
Tuesday’s rally was fueled by sellers expending energy Monday night without gaining traction. When Tuesday’s open at Monday’s low failed to extend down, a 24-point rally was fueled by trapped shorts covering.

Tuesday afternoon’s slide extended down overnight. This time Wednesday’s buyers made their move well before the cash session, which opened 16 points above the overnight low. And this time there was no intraday reversal.

The day-long uptrend was productive, probing fresh highs. But Tuesday’s prior high was still being tested at the close. So, the question is whether Wednesday’s intraday buyers are in the same spot as Monday night’s sellers. Did they gain traction for their efforts, or did they only test the range’s upper-end.

The question has two answers, 1165.00 and 1162.50. A pullback has room down to 1165.00 before sellers start gaining traction, which would be signaled under 1162.50. Timing is important, too. Even a shallow overnight pullback won’t be safe from reacting poorly to Thursday’s Jobless Claims. Extending the rally at this stage all but requires that its slope steepen exponentially.

Bottom line (My underlying premise)
A favorable reaction to Thursday’s pre-open econ report is likelier if fresh highs are already being probed. The next higher targets would be 1175.50 and 1177.25, which would have to be rejected early and aggressively to avoid threatening new highs. That may not be an option if the rally’s slope does steepen. Unfinished business below would remain outstanding. [/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.