Trading Plan for 5/19
[pay]About that close (How the prior session ended)
Tuesday’s last hour quickly established a new session low at 1115.25. And it quickly produced a bounce up to within 1 tick of the afternoon’s 1124.75 bias-down target. The prolonged testing there – repeatedly probing lower lows without ever recovering – had warned the drop from 1147.50 wasn’t over. Testing 1115.25 wasn’t over, either. The bounce was retraced entirely within a half-hour. The last half-hour’s bounce failed into the close.
Pattern points (And technical influences)
The Globex session’s first half-hour was still all about 1115.25, almost flat-lining there. Like the afternoon’s earlier failure to recover from 1124.75, another ledge had formed. And like the afternoon’s earlier ledge, another drop followed. Early Globex action has already tumbled 5 more points down to 1110.00.
One day after May 6’s “flash crash,” the market ranged widely within May’s afternoon downleg. May 7’s last hour consolidated in an 11-point range down to 1100.00. Tuesday’s post-close drop to 1110.00 represents the upper-end of May 7’s last hour consolidation. In other words, this is where buyers and sellers agreed to end the week after absorbing its rather large drop.
Now that area is being retested, after having bounced sharply in the interim – and after having bounced sharply at the prior session’s open. Meanwhile, the reverse triangle pattern I described during Tuesday’s morning Market Tour is initially targeting 1096.00, just under the lower-end of May 7’s last hour lows.
Gapping down into the target could expend too much selling pressure, in the same way that Tuesday’s gap up quickly peaked. Disaster could be averted by stalling after a gap down to targeted support. Disaster could be repeated by bouncing first to refuel sellers, or by extending down to give sellers traction.
Bottom line (My underlying premise)
Tuesday’s slide expended a lot of energy, but it also generated a lot. And closing under a prior low earned the decline traction for its effort. Gapping down as currently indicated by the post-close drop would need to extend down as well to continue gaining traction. Only a recovery above 1124.75 would even begin to make a recovery leg possible. [/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.