Trading Plan for 5/2

If Wednesday’s low had extended any lower… then perhaps sellers would be stretched so thinly to make a gap up likelier Thursday. Instead, the late consolidation leaves the door open to a volatile open.

Pattern points… (Setups and technicals)[pay]
Wednesday’s steep, relentless reaction down is one more piece of evidence that significant highs are forming. We’ve discussed during the past week other instances of turbulence upon attacking, testing and probing prior highs where the air is apparently thin. Another metaphor: The music keeps stopping and fewer chairs remain.

However, the deep session-long drop did not yet signal the trend is reversing down. Not convincingly. Closing under Tuesday’s morning’s 1581.25 low is a start, since it is between two high closes. But its session is one of those high closes. Closing under Friday’s 1572.50 low would be more convincing.

Meanwhile, Wednesday’s close was still consolidating at the afternoon’s 1578.50 bias-down target, if not actually testing it. Sellers gained traction, so rallying Thursday morning would all but require gapping up above the afternoon’s 1586.25 high. Only testing 1583.25 through the open could easily reverse down sharply through the morning.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Wednesday’s 1595.25 pre-open high or the gap back to Tuesday’s 1592.50 close don’t require being retested. Their retests would become likely on a big enough gap up Thursday. Otherwise, rejection of last week’s recovery could unfold very quickly. [/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.