Trading Plan for 10/14

[pay]Pattern notes.
Is it safe, yet? The Dow’s 936’point gain and S&Ps 126-point gain were records. My working target before 3:15 was ESz 1020’00, at least 40 points higher. Monday’s high met it within 4 points. This sort of surge doesn’t reverse down on a dime, and Monday’s close was essentially the session highs, so at least a slightly higher high remains likely.

Longer-term this does nothing to the requirement that Friday’s low be retested. And now the retest will originate in another dimension. So instead of forming a durable bottom while in the neighborhood, the inevitable retest will likely be part of a new downleg.

The question is when that begins. A close Monday above 966’00 was going to immunize the market from selling pressure for several days. But that was before Monday’s rally was Monday’s rally. The session high just 45 minutes later was 50 points higher. Only a news event could gap Tuesday’s open down far enough to negate Monday’s late gain. But a 50-point pullback to 966’00 is another story. And it might be the next story, with the quarterly earnings onslaught soon upon us.

Indicators and Internals.
RSI was mixed at Monday’s highs before the last half-hour got underway. Internal spreads at the time were 10:1 (in favor) both between advancing and declining and issues, and between up and down volume. The spread is impressive, but a healthy advance would have lopsided ratios. The last half-hour surged an amazing 35 S&Ps points. More amazing is that internal spreads expanded to 18:1. Each. And that’s what’s most amazing, that internals remained evenly balanced into that seemingly wanton buying. Perhaps it was a little more controlled than it appeared.

Tuesday’s opportunities.
An overnight dip to 1003’00-1004’00 would be the ideal pullback for launching a drive up to 1020’00. There might be some fine-tuning to that level before the open, but this is essentially where we should start to see buyers evaporate. A gap down or deeper break might not recover before more backing and filling. But an outstanding gap back to Monday’s close would help to keep alive the recovery’s momentum.[/pay]