Trading Plan for 5/17

[pay]About that close (How the prior session ended)
Friday afternoon’s 1125.00 bias-down signal was tested three times. The third time came after the no-bias environment was lapsing, so trending would be free to resume. Even more bearish is that it was a Friday afternoon, attacking new lows. There was no reason for the decline to hesitate. Yet, at only 1124.00, that’s exactly what it did. The hesitation was a warning in disguise.

Unfortunately, it only warned to cover shorts. It didn’t necessarily require the potential break lower to be replaced by anything in particular. Earlier price action had already ruled out a short-squeeze – meaning that the afternoon’s range would not break higher. But the range’s upper-end was 10 points higher at 1134.50. Short-squeeze, or not, 30 minutes later it was being tested into the close.

Pattern points (And technical influences)
Friday’s closing surge was bearish. By definition (my definition) the surge was only noise, no more productive than moving from one end of the 1124.00-1134.50 range to the other. Buyers gained no traction for their effort. This might not matter otherwise, except it was 10 points in 30 minutes, and that’s a lot of effort to expend.

The surge’s “ineffectual optimism” creates newly pent-up selling pressure. It is compounded by futures closing above the range’s upper-end, whose probe to 1136.25 had been rejected by the cash session close. And it compounds the afternoon’s unfulfilled selling pressure – new lows being threatened just 30 minutes earlier never printed, avoided by excessive optimism.

Monday’s open could very well retrace all of Friday’s surge by gapping down under Friday afternoon’s low. Gapping down under Friday afternoon’s low after trending up into the close could trigger a session-long decline. Wouldn’t that be an interesting Monday.

Time may not heal all wounds, but a 50-hour pause can dull memories. If Monday morning’s open isn’t already declining, then a bigger bounce may already be underway. Resistance at 1140.00-1142.00 might push back. But unless resistance were to push back early enough – like, Sunday night – resuming the decline would be difficult from above the strong support of Friday afternoon’s “lower prior highs.”

Bottom line (My underlying premise)
Steep and deep Friday morning drops can be exacerbated by the impending two days of illiquidity. Selling pressure appears that might not have otherwise, or that might have been delayed until the afternoon. Friday’s surge came too late for that template, but it may be self-fulfilling in the near-term if not already being rejected at Monday’s open. [/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.