Trading Plan for 5/18

[pay]Pattern notes.
Something big is coming. Friday fought like hell to avoid giving an obvious sign. To be waging such a fight at Friday’s levels is a sign in itself. True, Friday price action could be skewed by also being an expiration session. I’m not just discounting that; I’m counting on that. If Friday’s relentless selling was contrary, then more time would have been spent trapping shorts. For example, recovering from probes under bias-down signals instead of flirting with them, not waiting until the last hour beforeprobing prior lows.

Friday’s opening sequence twice tested its 886’50 bias-down signal as support through 10:15, the second time lingering long enough to invoke the grace period through 10:30. That 15-minutes should have either broken lower, or held. It rallied. Throughout. Several minutes later that gain had doubled to 9 points to 895’50. Despite seeming to reject the bias-down and put into play new highs, the market turned down anyway.

There are some characteristics about expiration sessions I’m willing to dismiss. One thing about them is everything. Sometimes the expiration influences can be contrary, which can be just as valuable, but often it is indiscriminate. That’s where I was headed Friday when the no-bias bounce was retraced entirely back to its origin. Earlier, actually, when 890’00 gave way. A pullback limit at 893’25 had already failed to hold, but that only told us the particular upleg’s momentum had ended. The break under 890’00 told us the particular direction was wrong, that the bias-up signal wouldn’t be tested, which was underscored by an 8-point slide into the noon hour.

This is where the market made a choice that tried to mask whether “something big is coming.” Noon hour noise could have served as a mask to hide a bounce for refueling sellers, but sellers kept on with it. Another bias-down signal at 881’00 barely escaped triggering, but sellers overcame that one, as well. New lows at 876’75  into Friday’s last hour formed an inverted Head & Shoulders whose target was met into the close.

Sellers did lose traction by not remaining under Wednesday’s prior lows, but buyers didn’t gain any. A gap up above 886’50 and quick recovery above 890’00 would put buyers back in control. More so, it would make Friday’s selling contrary after all, and last week’s selling corrective, with a new and powerful upleg gaining steam through the week. Otherwise, last week’s directional change should become more obvious by soon adding a steeper slope to its decline.

Indicators and Internals.
Two positive divergences in both 1-minute and 3-minute RSIs have yet to be productive. The first, at noon, barely firmed before extending down. The second, into the last hour, produced a bounce that peaked at its prior high instead of recovering it. Typically, this means the market’s facilitators are in touch with much bigger supply coming down the pipeline from the market’s bigger participants. The expiration session might skew this, which a gap up above 886’50 would suggest.

Monday’s opportunities.
A gap up above Friday’s 886’50 opening lows would rob sellers of more traction. Sellers could still regain traction by closing back under 880’00, but above 890’00 through any relevant timing window would start giving buyers traction for a steep week-long surge.[/pay]