Trading Plan for 5/19

[pay]Pattern notes.
A the close of last Wednesday’s reversal setup we already knew the template called for a corrective bounce Thursday. Of course, we didn’t know that “correction” would end the day above Wednesday’s high, let alone take the nine-week old rally to new highs before Friday’s open. Friday’s net gain was nominal, but correction? Really?

One of my last investigations into Elliott Wave theory landed me with an analyst that believed such things were possible. I had already developed my “pivotal high / actual high” label which considers the higher high to be no more than a retest. But I had not considered that last, failed upleg to be a correction, so much as part of a larger topping pattern. Frankly, I don’t see much of a difference, since the upleg in either description serves the same purpose of refueling sellers.

Before Wednesday’s reversal setup closed we knew one other thing, that the setup’s reversal would resume at Friday’s open. This qualification was fulfilled by a morning-long decline from the first tick. The afternoon’s rally retraced the decline, but that’s all. Friday’s pre-open high might still be retested although that’s not required since it was itself a retest of May 2’s pre-open high. But if sellers aren’t obviously in control and productive by Monday’s close then the bearish scenario would suffer greatly.

Indicators and Internals.
Friday’s NYSE down volume exceeded up volume, yet advancing issues outnumbered decliners. This positive divergence normally obligates Monday’s session to reward Friday’s buyers for their relative productivity. If Friday’s expiration undermined the internal spread’s integrity then Monday’s internals should be similarly affected. MACD & RSI meanwhile deteriorated into the afternoon’s recovery, which I take more seriously since the indicators were so correct at Friday’s bottom.

Monday’s opening setup.
Monday’s open might still be under the spell of expiration – perhaps Friday’s session was so under its spell that S&Ps will gap up above Friday’s ESm 1429’50 pre-open high, which would be very likely to extend sharply higher. But if sellers only let buyers retest 1429’50 and fulfill the internals’ positive divergence, then a dip from there back into negative territory would be extra vulnerable to extending down sharply. A gap under Friday afternoon’s 1418’00 low would simply reject all of the afternoon’s rally and its momentum. Any lesser weakness at or before Monday’s open would still have potential for retesting Friday’s pre-open high.[/pay]