Trading Plan for 5/22
[pay]Pattern notes.
The last blog post before Thursday’s close listed the reasons for a bounce. Its target was either 884’00 or 890’00, and in either case the bounce is done. Too bad, as I could have advocated holding long through the close. The pessimism of closing under 884’00 would have absorbed overnight selling pressure. And the pent-up buying pressure would have helped to resume the rally Friday.
Now resuming the rally Friday essentially requires gapping up to at least 893’00, above Thursday morning’s highs. Slightly softer or firmer through the open might be the day’s most exciting moments. No volatility is the worst thing for a trader, but there is potential of far worse for the market:
Recall that one of the reasons for Thursday’s late bounce was the test of last Wednesday’s pivotal low (the low prior to the actual low). While it all but requires eventually testing last Friday’s actual low, the pivotal low’s test normally produces a bounce back to prior highs. Target met. Having fulfilled the bounce potential, the decline is free to resume – with a vengeance.
Simply sliding at the open would suffice, but any break maintained under 884’00 would signal momentum had reversed down. A gap down under Thursday’s 878’00 low – which printed before the last hour – could also signal a session-long decline. Did I say, with a vengeance?
Despite the requirement to retest last Friday’s low, seasonal holiday bullishness could can come into play and extend a firm open, perhaps up to the 905’00 area. Unless and until 884’00 is broken as support, sellers can’t be relied upon to make any greater effort before next week.
Indicators and Internals.
MACD & RSI diverged positively at Thursday’s low to help signal the last hour’s bounce. Their potential has been realized, and no new signal was created before the close.
Friday’s opportunities.
This being a Friday, the morning’s bias signal should persist past the noon hour. The bond market’s early close often keeps things copasetic into the weekend. Sometimes it doesn’t. When something unexpected happens late in the day and Treasuries aren’t available to lay-off risk, price action can exacerbate the news item’s effect. Which is pretty much how nature intended, anyway. The whole scenario is unlikely, though, if 884’00-893’00 contains the open.[/pay]