Trading Plan for 10/19

Live by Apple, die by Apple… There was no unfinished business above left outstanding at Monday’s close. Optimism ahead of AAPL’s earning proved excessive. We already knew that, but the market seemed surprised by reacting down sharply after the close. Between that and the IBM earnings reaction that preceded it, S&Ps shed 11 points (squared red on chart below). That might be bullish, if Tuesday’s open handles it correctly…

Pattern points… (Setups and technicals)
Monday’s last upleg was the product of an extended narrowing range. It was signaled in the chartroom by exiting the afternoon’s no-bias environment probing fresh afternoon highs above 1176.75 (the actionable signal was the afternoon’s 1177.50 bias-up signal). Probing fresh afternoon lows would have been equally likely to extend in that direction.

Regardless, its first break should be reversed more substantially in the opposite direction. Its first break was higher, so a drop under Monday afternoon’s 1175.25 low would indicate momentum was reversing down. The 5-1/2 break higher peaked upon testing 1182.00, so it would be offset by a 1.618% move under 1175.25-1176.75 down to 1167.50 or 1164.25.

Those are targets, where selling pressure can be satisfied. There happens also to be an outstanding objective at Thursday 1162.50 low, and at and Friday’s 1163.00 oversold RSIs (circled red).

The bigger picture formed a potential Complex Triangle back to Wednesday’s high. It would be more complete, and able to trigger a more substantial downleg, by recovering Monday’s overnight dip to probe one more new high.

By the way, Monday’s new high created a new prior relative low at Thursday 1162.50 low. Closing under it would signal the trend reversing down. It’s much easier to trigger than 1152.00, and leaves less room for buyers to refuel with a dip.

What’s Next… (Outlook and opportunities)
AAPL’s pessimistic reaction might be bullish. Had the reaction been up, then a much more substantial offset to Monday afternoon’s false break would be needed. This requires only a shallower dip.

Also, it’s not easy for a gap down to extend through a prior low unless the prior low were broken early. So, neutralizing unfinished business at Thu/Fri ~1162.50 lows could hold. Holding their test through the bias timing window could react eventually back up and fill the gap back to Monday’s 1181.00 cash session close (circled green).

Notice how the bullish scenario relies upon holding a test of the ~1162.50 unfinished business below. And that requires actually testing it, probing it, and recovering through a relevant timing window. Inappropriate optimism upon re-re-retesting ~1162.50 would be short-lived, and could end the morning much lower.

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.