Trading Plan for 10/30

If the market ever intends to recognize its numerous extreme valuations… then it had better do so quickly, before the rally becomes parabolic.

Pattern points… (Setups and technicals)[pay]
I’m not critical of the overvaluation observations, or of the extreme measurements and ratios that the market now finds itself. It found itself among the overbought and uncorrected indicators dozens of points ago. It’s just that these situations can extend indefinitely. By definition, the market must have triggered extreme readings some time ago, in order for those readings to be historically extended now.

None of which matters until the market decides it’s done. We’ll know that from its behavior. And there is specific behavior that tends to precede a turning point.

My index relative performance setup that we discussed Saturday and I wrote about Monday is intended to identify when the market has decided to care about its extreme condition. But even that did not prevent extending higher Monday and Tuesday.

The reverse relationship that was signaled Friday, was signaled again Tuesday. This behavior suggests that big money is invested but not optimistic. It’s not the sort of defensive posturing that might be expected ahead of an FOMC meeting, so a negative reaction would not be easily absorbed. And positive news is already discounted.

[/pay]What’s Next… (Outlook and opportunities)[pay]
I am broadcasting from the road this week, and bandwidth is not cooperating. We’re trying one more thing Wednesday morning, but I am not hopeful. Meanwhile, I will be typing very much onto the chart screen. Let’s skip Wednesday’s pre-open Market Tour. Don’t skip the afternoon’s FOMC policy statement.[/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.