Trading Plan for 5/7

[pay]Pattern notes.
Wednesday’s last 90 minutes achieved nothing new compared to earlier price action. The afternoon’s prior high did hold a test as resistance – after the cash session close. This isn’t a new Globex trend extreme, so it won’t require retest intraday unless retested overnight. Plenty of news is due before then to drive price either sharply higher or lower before then.

While the pattern tells us how much more dramatically this will all end, it also informs our expectations for the session following a rally. The market’s pattern has been to behave optimistically, and then to be punished for its wanton excess. A gap under 3:30’s 908’00 low might be sufficient to signal a session-long decline. A gap under 904’50 would be more reliable, but less likely. Early weakness to only 911’00-912’00 would be expected to recover, if not also extend higher.

Monday’s alleged breakout wasn’t confirmed Tuesday, and now Wednesday’s breakout will be seeking confirmation Thursday. The rally can continue to employ this creeping tactic for sustaining its momentum. But it is built on weak buying, and it increases the bill that will eventually come due – typically sooner rather than later, regardless of the interim gains.

Indicators and Internals.
Both 1-minute and 3-minute MACD & RSI diverged negatively on the afternoon’s high. The drop it produced wasn’t formed on a similar technical improvement. And technicals deteriorated again through the cash session close. Perhaps it’s not quite a sell signal, but neither does it require that higher highs print.

Thursday’s opportunities.
Stress tests will become history Thursday, and a bevy of econ reports will clear the way for Friday’s Employment report. No doubt, some of Wednesday’s buying was expecting Thursday’s jobs reports to confirm ADP’s data. Even if it does, will there be enough positive surprise to justify the anticipation? Either the data will or won’t confirm, and either the reaction will or won’t show too much optimism. All of the permutations create exciting scenarios for Thursday afternoon and Friday morning. [/pay]