Trading Plan for 1/23

If Tuesday’s post-close earnings are surprising… then can Tuesday’s rally accelerate its pace Wednesday? The upside reaction to the two highest profile releases — GOOG +34 and IBM +8 suggests they lacked optimism. That won’t mean much for the broader market’s rally if it doesn’t also respond aggressively to the “good” news.

Pattern points… (Setups and technicals)[pay]
Tuesday morning’s drop was similar to Friday morning’s drop. Their similarity might also track their resolutions. Both mornings probed negative territory, and their afternoons recovered. Interestingly, each recovery gained more than 10 points, so recovering from Tuesday’s shallower drop was quicker to probe fresh higher highs.

After retracing the morning’s drop, Friday’s recovery had little time remaining to extend higher before the illiquid weekend began. Tuesday’s recovery has three sessions of liquidity ahead of it, and little excuse not to attract broad sponsorship to extending higher.

Considering the lack of traction below, and the very recent upside surprises, hesitating to extend the rally Wednesday would be surprising. Extending, and then reversing down, would be more plausible, but still unlikely to gain traction in forming a top.

[/pay]What’s Next… (Outlook and opportunities)[pay]
Tuesday’s close barely managed to touch the afternoon’s 1487.00 bias-up target. Recovering it at least 3 minutes prior to the close could have triggered a hold-long setup. Already extending higher post-close to 1491.50 does risk borrowing too much from the aggressive follow-through I describe above. [/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.