Trading Plan for 5/3

[pay]About that close (How the prior session ended)
Trending out of a Friday’s afternoon’s bias environment is difficult to stop. It’s either going to extend, or else reverse sharply. Friday’s extended.

The afternoon’s bias-down target was met and held before the bias environment even began, expending all available selling pressure. Never fear – a bounce through 2:30 refueled sellers. The bounce also thoroughly tested relevant resistance – 1193.50. Ninety minutes later Friday’s last-minute low touched 1182.75.

Pattern points (And technical influences)
Friday’s 1182.75 last-minute low was 25 points under the 1208.00 post-open high. A lot of energy was expended. Did sellers gain traction for their efforts? Yes. Friday’s low did probe Wednesday’s last-minute low at 1184.25 (circled red), but the reaction failed to recover that probed low’s prior high (boxed green). Now the next relative low at 1176.75 is an objective (dashed red line).

The path there may not be direct. RSIs diverged positively into Friday’s last-minute consolidation. That’s too late to qualify as a buy signal and it could still resolve down without delay. It’s still likely to resolve down, but not necessarily immediately.

Thursday’s equilibrium setup is dead, probably killed by Friday morning’s bias-down that persisted through the noon hour. Regardless, the setup’s potential influence is limited to the following day, and that day has ended.

No doubt the fluid news environment motivated much of Friday’s selling. Surviving the weekend might be worthy of a bounce. A recovery or an attempt isn’t impossible, but it would be unrelated to Thursday’s equilibrium setup. Just recovering 1198.50 intraday or 1193.50 on a closing basis (both green lines in the top chart) would start giving buyers traction for another bounce leg.

RSIs did diverge positively into Friday’s last-minute low. But ts effect could play out Sunday night in a corrective bounce to 1191.50-1193.50 without leaving unfinished business above. Monday’s open could already be well on its way to probing last week’s Globex 1176.75 lows (dashed red line on top chart), on the way down 1175.50 and 1171.00.

In practice, I suspect this group of targets will be probed intraday down to 1164.00-1165.00. Then its test would either launch a bounce to refuel sellers for a bigger downleg, or else plunge through 1156.50 to extend the current one. In other words, a new relative low would damage the chart beyond repair. Almost any delay to resuming the rally would be due to the trend already reversing down.

Bottom line (My underlying premise)
The two-week old topping pattern (circled red in second chart) remains much more vulnerable to launching a downleg soon. Perhaps the cause is PIIGS and other sovereign debt issues, FINREG’s attack on hedging that undermines liquidity, or the Gulf coast’s environmental game changer. Check “D” for all of the above. For extra credit, throw in the summer timing – the market is approaching an historically difficult seasonal period. It doesn’t take much, just more sellers than buyers. [/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.