Trading Plan for 5/15

If Tuesday afternoon’s retracement wanted to extend down… then it could not have been much better positioned. But it didn’t extend down. Instead, the last hour probed fresh highs. Either sellers were biding their time for a more timely attack at Wednesday’s open, or they’re trapped.

Pattern points… (Setups and technicals)[pay]
This being expiration week, price action through Wednesday’s close can be very predictive of any bias into and out of the weekend. That’s because expiration activity doesn’t wait until Friday. In fact, Tuesday’s price action is already somewhat influenced by the event.

Some degree of Tuesday’s 21-point rally — from the pre-open dip to 1626.50 up to 1647.50 — was accelerated two or three days early. That means it has already influenced price action — its buying pressure won’t be available to buffer or rescue the market from a decline.

Not that the market is necessarily going to decline. The window is closing on the bearish scenario of rejecting a breakout attempt, by either Tuesday’s close or Wednesday’s close. Tuesday’s close has passed.

Rejecting Tuesday’s breakout the same day could have been done aggressively. That’s not an option for reversing down on Wednesday. Only a super-aggressive reversal like gapping down under a prior low, or a gradual reversal like trending down from a flat-to-higher open, can extend lower without leaving any attraction above.

Tuesday’s late 5-point bounce from its 1642.50 pullback low back to session highs was essentially noise. But not rejecting it Wednesday — dipping only so deeply, recovering from a probe under prior highs, or not dipping at all — would suggest the rally is next targeting 1654.50 and 1671.75.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday morning’s rally was a product of the morning. The noon hour’s brief probe to a fresh high was reversed down until the final hour. And the morning’s high wasn’t probed until the last half-hour. Gapping down under the afternoon’s 1643.75 lows would almost form a “session-long decline” setup. No opening weakness Wednesday would almost ensure playing out the rally by noon. [/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.