Trading Plan for 5/5

About that close (How the prior session ended)
The last hour was entered with a dip down to the morning’s 1167.00 low. Or, should I say, “blip.” The blip-down touched 1166.25 one minute, and the next minute ended at 1168.75. After the bounce reached 1172.00, the last half-hour plunged to new lows at 1164.25. That was also recovered up to 1172.00. The cash session’s closing equivalent was 1170.25, but futures extended up to 1173.75.

Pattern points (And technical influences)
“That which doesn’t kill you makes you stronger.” This pretty much sums up the market’s status.

March ended with a Complex Triangle whose eventual retest ranges from 1171.00 down to 1156.50. Monday’s Trading Plan noted that the first downleg’s target was likely to be 1164.00-1165.00. Tuesday’s 1164.25 low met this target. Its 30-minute, 19-1/2 point reaction up to 1173.75 suggests the target satisfied a lot of selling pressure.

Tuesday’s pattern would have formed a “lunch hour reversal” setup, except two of its elements were at least 30 minutes late. First, the noon hour’s entry price wasn’t probed until after the bias timing window closed. And second, only the futures session closed above the noon hour’s entry price.

These two exceptions are enough to sink the reversal setup, and they’re enough to sink the market. The exceptions are also enough to be prepared in case an early sell-off Wednesday doesn’t gain traction, because it would become likely to wreverse up sharply.

Tuesday’s last-minute bounce expended a lot of energy. And futures closed with at least a 2-point premium to the underlying cash. These will try to inhibit an overnight recovery. They might also influence an overnight drop. Assuming that an overnight drop doesn’t gain traction, an attraction to fill the gap back to Tuesday’s close could then trigger a bigger rally.

Rallying Wednesday morning would be entirely appropriate for the “lunch hour reversal” setup that narrowly missed triggering. If its exceptions aren’t overcome by a morning rally, then it’s likely because the decline is extending down much more sharply.

Bottom line (My underlying premise)
If Tuesday’s drop didn’t kill the market, then it made it stronger. The last hour’s new low was only a probe of the range’s lower-end that satisfied a major target. But the last-minute surge expended a lot of valuable buying pressure. The basis for a rally is so well laid, that perhaps the only reason not to rally is because the market is crashing.

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.