Trading Plan for 5/14
[pay]Pattern notes.
If sellers were retaking control from this stage of the rally, they needed to do so as powerfully as possible. Wednesday’s gap down under Tuesday afternoon’s low reflected quite a bit of selling pressure. Maintaining the gap triggered a session-long decline setup. And the session did decline 27 points into the afternoon.
A last-hour new low and/or trending down into the close are traditional outcomes to the session-long decline setup. Another characteristic is not bouncing into the close in place of the first two criteria. The the last hour didn’t produce a new low, but it didn’t bounce either. This doesn’t negate the objective to reach new lows. And it should provide compensation for the delay, exacerbating the eventual drop.
The decline could be derailed, and two scenarios are described below. They are at the moment hypothetical. The facts we do know are that a session-long decline was signaled, and essentially fulfilled but for a technicality that is yet to be resolved. The drop emerged from a 1-1/2 week topping pattern, that still hasn’t let buyers gain traction while breaking relevant support. Perhaps Friday’s expiration can save the day by rejecting Wednesday’s drop. But the trend has otherwise reversed down.
Indicators and Internals.
Wednesday’s last 2-1/2 hours of ranging sideways was preceded by a decline. The decline ended with two lower lows at 881’00 and then 880’00. RSIs made higher lows but were still oversold, undermining their bounces. Sellers never extended themselves again, and there was no opportunity for a positive divergence.
Thursday’s opportunities.
The PPI and Jobless Claims each are high-profile, and both are released at 8:30. Two scenarios might interrupt lower lows, or detour them. First, although not required, an interim bounce to 892’50 or 898’00 is possible overnight, while still allowing a gap down Thursday. Second, the drop could be invalidated by gapping up above either bounce limit. But gapping down under under 880’00-881’00 should resume the decline with a vengeance, or else be vulnerable to buyers gaining traction for more than a corrective bounce. [/pay]