Trading Plan for 5/16

If the drop since Tuesday’s high is expiration related… then we haven’t seen the half of it. Actually, we have seen half of it. The next half should either recover entirely, or else essentially double the drop so far.

Pattern points… (Setups and technicals)[pay]
Thursday morning’s drop tested uptrending support that originated two weeks ago. I showed it on a chart that accompanied the morning’s post-open blog post. The trendline held through the close, but it was mangled enough to expect its eventual break.

Breaking under the trendline sooner rather than later would target a test of the trendline’s prior touch at 1854.50. Its test could easily launch a leg to new highs targeting 1907.00. Letting a small bounce play out first would make the retest of 1854.50 less likely to hold.

It might seem from the examples that a test of 1854.50 is inevitable. Well, yes. The only question is when and from what level.

Since buyers gained no traction for their efforts Thursday afternoon, Friday’s open must gap up to suggest this downleg is done. Just recovering 1871.25  would be a start. Preferably at least 1875.00. Otherwise, the decline would likely resume if bouncing too late, or too little, or not maintaining a bounce through the open.

[/pay]What’s Next… (Outlook and opportunities)[pay]
The late bearish WedEX could invert by gapping up sufficiently. Rejecting a deep enough dip early enough could also rally, but the setup is much less likely to develop on expiration. Being Friday, the morning’s bias is likely to persist through the noon hour. And being expiration, trending through the opening 15 minutes of volatility is likely to persist through the close. [/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.