Trading Plan for 5/24

[pay]About that close (How the prior session ended)
Friday afternoon’s 21-point slide from 1088.75 to 1068.00 was pretty choppy for a four-hour, 21-point move. RSIs deteriorated while chipping away at the support offered around Thursday’s 1070.00 close. Its break would have triggered a 17-point plunge targeting the open’s 1051.25 low. Expiration’s influence inverted the pattern’s outcome into a 20-minute surge back up to 1086.75.

Pattern points (And technical influences)
Since Friday’s late surge was contained entirely within the afternoon’s downleg, its sponsorship gained no traction, making it only noise. RSIs weren’t bullish at the surge’s origin, but not so bearish as to require the surge’s failure. Distance makes the heart grow fonder, and the weekend’s pause might invite new sponsorship to try gapping up at Monday’s open.

The trick to gapping up is to probe Friday’s 1088.75 high overnight. Testing it as support at Monday’s open would be likely to recover and extend higher. Also touching Thursday’s 1093.75 prior highs overnight would undermine the gap’s momentum, and failing to recover it after the open would be bearish. Extending higher would target Wednesday’s “higher prior lows” or its gap close up to 1104.00 or 1110.00.

The other trick to gapping up is to avoid gapping down. And after having trended up into Friday’s close, gapping down under the afternoon’s 1068.00 low would trigger a session-long decline. Its objective would be to test of Friday’s opening gap down at 1154.00. Its potential would be to resume the decline.

Before last week we covered a variety of reasons why the “flash crash” low would be retested. Its retest came quickly, and the retracement was pretty aggressive. Seven consecutive sessions that closed under the prior day’s high, including two big gaps down. A lot of selling pressure has been expended without refueling. That tends to find it sorely lacking just when it is needed most, upon testing support. Indeed, Friday’s open was quite a low.

However, Friday’s low probably isn’t durable because two “V” bottoms are like two wrongs. And mama always told me two wrongs don’t make a bottom (mama was a technical analyst, too). Backing and filling would have reflected ownership changing hands from weak sellers to strong accumulators. Madly rushing back to the low means strong hands are dumping too.

Memorial Day is only one week away, and the illiquidity of three-day holiday weekends makes trending difficult. So, extending Friday’s bounce beyond Tuesday’s open could delay the decline’s resumption until mid-June. Meanwhile, Friday’s opening gap down at 1154.00 – like all opening gaps – needs to be retested at some point eventually. If tested Monday, then its recovery could launch a sizable corrective rally, but only that. Failing to hold its test on a closing basis could find an even madder rush of sellers trying to beat the holiday illiquidity.

Bottom line (My underlying premise)
Strong hands don’t act aggressively at market turning points because by nature of their size they have to act early. Friday’s late surge was influenced by expiration, which tends also to influence Monday’s open, if not the entire morning. Getting past that window will quickly reveal whether market plans next to be influenced by the new downtrend, or by the impending holiday weekend. [/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.