Trading Plan for December 7, 2011

Economic Reports Due Out (Times are EST): MBA Purchase Applications (7am), Quarterly Services Survey (10am), EIA Petroleum Status Report (10:30am), Consumer Credit (3pm)

The Breakdown:

• Futures are slightly negative heading into the open and tumbling well off of their session highs. 
• Asia, as a whole, traded about 1.6% higher. Europe is currently trading slightly in the red.
• S&P has for the second day been rejected off of the 200-day moving average and the downward trend-line coming off of the 7/7/11 highs. 
• While I’d like to say this is bearish, it really isn’t, because it hasn’t resulted in a major sell-off on the overall day. Despite the rejection at these key resistance levels, the S&P finished both days in the green.
• Volume reading dropped off yesterday on the S&P.
• Little has changed for the market since yesterday.  
• 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.
• 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. 
• We are overbought in the short and intermediate time-frames.
• Three days in a row that we’ve seen the market fade noticeably off of its highs, 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. The risk is to the upside, and there seems to be much more reward building bearish positions in the short-term.