Trading Plan for 5/21
[pay]About that close (How the prior session ended)
Thursday’s last half-hour plunged from yet another test of 1089.00, down to new session lows at 1069.50. The afternoon’s last short-entry parameters were triggered 30 minutes earlier under 1088.00 and 1086.25. Futures extended down to 1067.25.
Down 21 points in 30 minutes, retesting the low, RSIs simultaneously oversold. Surely sellers must pause to refuel, right? Actually, this was a rare instance in which holding short through the close could be considered.
Pattern points (And technical influences)
Why – don’t oversold RSIs reflect a vulnerability to bouncing? Yes, normally. The decline’s sponsorship thins out as its selling pressure gets expended, and price becomes less attractive. Then weak-handed, bottom-fishing knife catchers start buying in hopes of a quick bounce. Their buying combines with less selling and a rally ensues. Then bigger sellers step in again.
That’s normally, intraday. But weak-handed buyers don’t exist at the close. So, Thursday’s last-minute oversold RSIs were vulnerable to extending down without delay. In fact, 1063.00 was touched by 4:45pm ET.
1-minute RSI diverged positively into the post-close low. A near-term bottom could form if 3-minute RSI also leaves oversold territory on a lower low to 1061.75. But there’s not much support under 1059.50, except for May 6’s 1056.00 “V” bottom. And its support is only obligatory.
This being expiration Friday, potential weirdness can’t be counted out. Somehow recovering 1082.00 through the open could also trigger a near-term bottom. Weirdness tends to travel in packs, so strength might get some benefit of the doubt along with tight trailing stops.
Bottom line (My underlying premise)
Trends tend to extend when expiration Friday is greeted at a new trend extreme. And expiration’s characteristics tend to repeat on Monday. Unless this cycle throws the market a curve – or some sort of intervention were to blind-side the bearish posture – much lower lows lie ahead… FYI: I recorded Thursday’s market wrap – click here.[/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.