Trading Plan for 10/18

If an upleg at this stage of the rally weren’t steep… then it would be very vulnerable to falling over from losing its balance. Sponsorship took too little time to refuel after ending its last upleg. These buyers are much weaker-handed, and unlikely to defend weakness.

Pattern points… (Setups and technicals)[pay]
Thursday morning’s rally from the 1706.50 pre-open low extended through Wednesday’s 1717.00 highs without any refueling dip. Slicing through Wednesday’s 1717.00 highs extended through the noon hour with a minor challenge. Ironically, it was the bias environment’s pullback that might be this rally’s undoing.

That’s because the pullback from 1724.75 to 1720.75 didn’t resume the rally until only weak hands would be productive. And they were productive, extending up to 1728.50 and probing last month’s FOMC reaction for a new high close. Optimism is so extreme, that the afternoon ahead of GOOG’s earnings rallied sharply, instead of posturing defensively.

But this optimism continues to be weak-handed sponsorship, living on borrowed time. Like the U.S. government apparently, that borrowing can extend for an indefinite time. But not infinitely. The eventual top will appear aggressively, and it probably won’t recover from its first probe under a prior lows.

[/pay]What’s Next… (Outlook and opportunities)[pay]
GOOG’s earnings reaction was a $56 surge to new highs. S&P futures have benefited to the extent of a single errant tick up to 1728.75. And that has reacted back down to 1727.25. That suggests the market’s optimism is extended, when apparently all the good news is already reflected in price. What’s going to happen at the hint of bad news? [/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.