I don’t typically trade Fridays due to weekly options expiration, and today is month-end, also a tricky day to trade. Caution is warranted if you move forward.

Yesterday’s regular and last night’s Globex sessions have been instructive in a couple of different ways. First, note that yesterday’s regular session involved a “Look Above and Fail” (see yesterday’s epilogue and extensive discussion of the setup here). With the breakout failing this morning, the balance area low remains in play at 4166.75 today.

Additionally, overnight traders rejected the breakout from balance (again), just as their counterparts had done in yesterday’s regular session. The regular session traders managed a last-minute save into yesterday’s close – but it left a potentially negative “hanging man” candle on the daily chart.

Likely, many traders initiated new long positions above the balance area high yesterday and are now trapped. The breakout likely lured them into believing that yesterday’s all-time high and close above the breakout was solid – expecting the market to start a new leg higher out of the consolidation. These trapped traders may be eager to push the sell button this morning – as the breakout has failed overnight. 

Otherwise, overnight inventory is net short, normally resulting in a profit-motived counter-auction (higher) at the open. No attempt at a counter-auction would be further evidence of weakness and the trapped longs. 

Keep in mind that almost every short-term trader observes balance breakouts, and they don’t usually hesitate to seize the opportunity presented. Most traders see the same horizontal resistance line and set buy stops just above it. I believe there is strong potential for at least some of these traders who went long late yesterday to be disappointed in a big way this morning.

As mentioned above, the last trading day of April today could bring on added volatility, and traders also have to digest the Amazon gap this morning. Other tech monsters are still reacting to their own reports earlier in the week.

I would use the bottom of the balance area at 4166.75 today as a downside target – and an initial line in the sand. As we are opening within yesterday’s range, it’s not easy to pinpoint an exact entry for a short trade, but I would trade from the framework that sellers could be in control of the tape, at least down to balance area low. 

Target the balance area low first.  If it is breached, then target the top of the single prints at 4160. Beyond that, target the 4/22 volume point of control at 4127.25. In addition to all that we retain in our narrative, today’s path will tell us a lot about the state of the market going into May. Sell in May and go away? We shall see.

Failing to test the low end of balance would be a more bullish sign and should be carried forward as a WWSHD (When What Should Happen Doesn’t).

Good luck today.

A.F. Thornton