Trading Plan for December 6, 2011

Economic Reports Due Out (Times are EST): ICSC-Goldman Store Sales (7:45am), Redbook (8:55am), Treasury STRIPS (3pm)

The Breakdown:

• Futures are slightly, almost flat heading into the open. 
• Asia traded traded -1.3% lower, while Europe is trading mixed. 
• It is becoming very apparent that there is a huge disconnect between the US and Europe and the correlation with Asian markets. The Asian markets do not share our optimistic European outlook of late. 
• I didn’t mention this before, and probably should have, that we are trading in a perfect channel (see chart below). Main focus at this point should be on the trend-line that started off of the 7/7/11 highs, and has proceeded downward ever since. If we break that downward trend-line, it will mark a bullish shift in sentiment for the markets. 
• Currently resistance for the trend-line lies at 1268.Yesterday we came within 1-2 points of it before selling off into the close. 
• Price action on the S&P failed to break through and hold the 200-day moving average. 
• We broke through the downtrend of the October highs, but it appears resistance will be at the downtrend from the 7/7/11 highs. 
• Volume remained on par with recent days.
• We are overbought in the short and intermediate time-frames. 
• Two days in a row now we have seen significant gap ups fade into the close, which tells me traders are more concerned with securing profits at this juncture. 
• Be very suspicious of the longevity and legitimacy of this market. To me it just reeks of another overdone bear-market rally, which tends to be extreme and exaggerated when they occur. This kind of action is not conducive to a bull market.
• If the head and shoulders pattern forming on the weekly chart holds, then there is limited upside in the market from there.
• My Conclusion: I’ve grown bearish on this market in the short-term. The intraday price action is weakening, despite the strong overnight action. The risk is to the upside, and there seems to be much more reward building bearish positions in the short-term.