Trading Plan for 5/5

Wednesday’s session was interesting for several reasons… not the least of which was it being the third consecutive negative close. Its low tested February’s prior high close as support. The two-week rally up to Monday’s high is now 38.2% retraced. If Thursday doesn’t bounce, then the next major downleg may underway already. [pay]

Pattern points… (Setups and technicals)
1346.50-1347.00 needed to be recovered through some relevant timing window to signal momentum had reversed up. But it held its test as resistance. Any delay in resuming the bounce would all but ensure probing Wednesday’s 1337.50 low.

Pivotal uptrending support from Wednesday morning’s low was being tested at the close. It was the trendline’s second test, the test that often breaks lower. Its key support is 1341.75, and its break would make new lows a formality.

If Friday’s post-close surge is not valid, then neither is Sunday night’s initial follow-through, or the surge in reaction to the Bin Laden news. And then neither is there any requirement to retest any of it before the anticipated downleg does its damage.

Almost any close under Wednesday’s low would point down sharply. So, closing under Wednesday’s low would suggest there is no requirement to retest prior highs, and that the next downleg is underway.

What’s Next… (Outlook and opportunities)
Recovering 1346.50-1347.00 through Thursday’s open would still face a challenge from 1351.75 and 1353.50. But it would be a big step toward testing 1358.75 and 1361.50, and potentially attacking prior highs.

A break under 1341.75 would be confirmed under 1339.75. New lows could be as shallow as 1336.00, although probably targeting 1333.50, and potentially 1328.75.[/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.