Trading Plan for 5/8
[pay]Pattern notes.
Tuesday’s rally had extended higher after the close until touching ESm 1424’00 where Friday’s cash session had also peaked. Wednesday’s cash session decline closed under Friday’s 1406’00 low. Wednesday’s close was also 2 points under Tuesday’s 1397’00 low. Yesterday’s setup is similar to last Wednesday’s rejection of new highs intraday that reversed down to finish back under the two prior high closes – indeed the same two prior high closes were retraced yesterday.
Yesterday’s set-up is no less distributive than last Wednesday’s rejected high. Its rejection should be as dramatic as last Thursday, or else it should be confirmed by lower lows without much delay. The single-session test of both Friday’s high and low can serve by proxy in place of actually testing Friday’s 1427’00 pre-open high, so long as lower lows are not delayed.
What would delaying lower lows look like? A recovery above one or two price levels that had previously served as support. One example is Wednesday’s 1400’50 open that had required a retest and now serves as resistance. Last week’s prior high at 1404’00 is also back to being resistance. Closing back above one or both of these levels Thursday would make buyers all but invincible. In place of that sustained strength, any temporary strength should resolve down as a new downleg begins.
Indicators and Internals.
Positive divergences among MACD & RSI at Wednesday’s 1390’50 low gave buyers an edge for early overnight trading. So far that has produced a bounce to within 1 point of 1400’50, while MACD & RSI show only the least bit of deterioration. Meanwhile, Wednesday’s internal spreads were about 5 times more down volume than up volume producing only about 2-1/2 times more declining issues than advancers. This lopsidedness suggests that at least some part of the overnight rally attempt will persist into Thursday’s session as the market rewards Wednesday’s buyers for their relative productivity.
Thursday’s opening setup.
Jobless Claims is the week’s last high-profile econ report, but it might be overshadowed by interest rate announcements from the BOE and ECB. The pound and euro have been deteriorating recently to new relative lows, so this could be the catalyst that makes the Dollar’s rally obvious to all. If the Dollar’s initial reaction to currency moves is likely to persist throughout the day, then the S&Ps initial reaction to the Dollar should also have legs.[/pay]