Trading Plan for 5/7

If Tuesday’s decline produces another on Wednesday… then the optetial for one more market high would start to evaporate. But it hasn’t yet.

Pattern points… (Setups and technicals)[pay]
Let that be a lesson, that it pays to be generous. We were generous to Monday’s sellers, giving them credibility for having controlled the bounce into Monday’s cash session close, despite futures then plunging. That enabled Tuesday’s open to trigger a “session-long decline” setup by gapping down under Monday afternoon’s low.

The session-long decline setup was fulfilled. Every intraday timing window probed a fresh low, with the one acceptable lone exception. Not required, but likely, was to trend down into the close.

Whether or not the session-long decline setup was valid, the market performed as if it were. Now the setup’s validity is irrelevant, and trending down throughout Tuesday has made Wednesday morning likely to trend down, too. Fresh lows are likely already simply because Tuesday afternoon’s lows hovered optimistically just above Monday morning’s lows.

This doesn’t yet change the potential for recovering to new highs. Tuesday’s drop was, after all, only an “inside day.” By the same token, new highs, would still be part of an ongoing topping process we’ve been tracking.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Probing lower lows down to 1853.00 overnight and recovering before Wednesday’s open would be credible for reversing momentum up already. Compartmentalizing lower lows to only Wednesday’s opening 15 minutes of volatility could end the pullback, too. Otherwise, even a shallow opening bounce would be likely to probe under Tuesday’s lows.[/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.