Sheridan's forces had established themselves on both sides of the Valley Pike north of Cedar Creek. Their eastern flank was about 1300 yards from Cedar Creek's confluence with the North Fork of the Shenandoah River. The area east of the Pike was occupied by the VIII Corps. Its First Division was posted considerably forward on a hill almost due east of Hupp's Hill, overlooking the Bowman's Mill Ford across Cedar Creek on the high ground now traced by CR 635. The division entrenched itself on these heights along with three batteries of artillery. Batteries B of the Fifth U.S. and D of the First Pennsylvania, with six guns each, were 400 yards apart on a tongue of land overlooking Bowman's Mill Ford. Battery L, First Ohio Artillery was farther northwest with four guns in a position overlooking the Cedar Creek Bridge and the Pike, now bounded by US 11 and I-81. The Second Division of the VIII Corps, located about 1300 yards to the north in open camp approximately where the Interstate goes over CR 840, was beginning to prepare earthworks south and eastward of its campsite, but they would not be ready in time for the coming battle.
The XIX Corps was entrenched on the west side of the Valley Pike. Its eastern flank was anchored on the Pike overlooking Cedar Creek Bridge beginning where the 128th New York monument now stands. This position was occupied by the corps' Second Division and was further supported by a large portion of the corps artillery. An artillery strong point was set up on the corps' west flank in the First Division area on the high ground immediately southeast of where the Meadow Mills railway trestle now is. This position dominated Cedar Creek and Meadow Brook, a stream flowing parallel to the Pike from north of Middletown and emptying into Cedar Creek. The corps' camps occupied an open, rolling area north of its positions extending almost to Belle Grove Plantation.
The VI Corps went into bivouac west of Meadow Brook when it returned on the 14th. The Third Division overlooked the stream and was oriented southward toward Cedar Creek. The First Division occupied Red Hill farther west while the Second Division was in camp north and east of Red Hill and the modem quarry. The corps' trains (support services units) were on the area between Red Hill and Meadow Brook roughly on a line with Belle Grove and parallel to modem CR 624. The corps was not entrenched at all. By 16 October General Wesley Merritt's Cavalry Division was in bivouac about a mile northwest of Red Hill near Nieswander's Fort, while General George A. Custer's Cavalry Division patrolled possible Cedar Creek crossings on the west side of the Valley in the vicinity of Hite's Chapel, two or more miles beyond.
The Federals were secure in these positions, feeling that Early was too outnumbered to do anything other than harass them. However, evidence that the Confederate commander may have been considering something major continued to accumulate. On 16 October, Sheridan left for Washington and the conference with Stanton, taking the Cavalry Corps with him as far as Front Royal. He intended to send it on a raid to destroy railroads around Charlottesville. But at Front Royal he received information from the acting army commander, General Horatio G. Wright, that a Confederate wigwag message had been intercepted indicating the arrival of reinforcements for Early, led by General James Longstreet. Sheridan suspected a ruse. But true or not, he reasoned that the sending of the message in itself behooved return of the Cavalry Corps to the Cedar Creek camp. The message was actually false, sent by Early in the hopes that it would cause Sheridan to pull farther north. Instead it had the opposite effect. The cavalry returned to be placed entirely on the west side of the Valley by Wright, who was most concerned about a likely attack there. This left one cavalry brigade at Buckton's Ford about two miles east of the VIII Corps and another even farther east near Front Royal. In keeping with Sheridan's concept, the cavalry was concentrated to be used en masse. Divisions and corps were expected to provide their own local security and to send out distant pickets. This had not been the custom in Crook's corps, and the requirement for distant security posts was largely ignored. As a result, it was particularly vulnerable to attack.
By 17 October, Early had reached the point where he had to attack or retreat. The devastation of the Valley made it impossible for him to remain on Fisher's Hill and to sustain his army. His reconnaissances had shown that an attack down the Pike or on the west side of the Valley would have little chance of success. This left the rougher east side which looked so unpromising that the Federals seemed to rely on the terrain alone as their best defense. General John B. Gordon and Early's topographer, Captain Jed Hotchkiss, climbed to a signal station on the top of Three Top, or Massanutten, Mountain to examine the Federal positions. From there, they had a panoramic view of Sheridan's whole camp. In this pre-camouflage era every position, every gun was clearly visible from the Confederate aerie. Gordon said he could even see the color of the piping on the soldiers' jackets and the sores on horses' backs. Thus equipped with detailed information on the Federal dispositions, Gordon and Hotchkiss concocted a plan of attack against Sheridan's weak eastern flank.
Confederate engineers immediately began to improve and mark the route Gordon's force was to follow. One modification to the plan of attack was made when General Pegram returned from a reconnaissance and reported more entrenchments in the VIII Corps area. Consequently, Early decided to send Kershaw's Division to the Bowman's Mill crossing of Cedar Creek to attack the positions of the First Division, VIII Corps head on. Since Kershaw had no time to reconnoiter, Early planned to go with the column and give Kershaw instructions on the ground.
Early gave his orders at a commander's conference at 1400 on the 18th. The officers synchronized their watches in order to meet the attack hour of 0500, 19 October 1864, as closely as possible. Although risky, the scheme of maneuver was a good one. It gave Early's outnumbered attackers the opportunity to achieve local superiority of mass, allowing them to defeat their enemy in detail in conjunction with the surprise intrinsic to their approach. Early succinctly explained the need for such a gamble: "I can only say we had been fighting large odds during the whole war, and I knew there was no chance of lessening them.... General Lee . . . expressed an earnest desire that a victory should be gained in the Valley if possible and it could not be gained without fighting for it."
While the Confederates made their final preparations, the Federals continued in a false sense of security. One of Custer's cavalry officers remembered the day nostalgically: