Today’s Trading Plan: A Face Ripping Rally

Technical Outlook:

• After receiving the third most oversold reading on the stock market in the last 30 years on the T2108 (% of stocks trading above the 40-day moving average), the market is finally showing signs of a strong rally today.
• Oil is up strong, along with China, Europe and Japan. The key will be early on in the equities trading session whether the bulls don’t start to give up the gains right away as that has been a tendency of late.
• Today’s market has the potential to provide a short squeeze of absolute epic proportions, especially considering the fact that the biggest market rallies happen in the most bearish of markets. Considering SPX was down at one point 12% on the month, just this week, I would say that the market is setup for such a rally.
• Oil is rallying over 5% in the pre-market and considering that there is about a 96% correlation this month between equities and oil, that should bode well for the indices today.
• The 5-day moving average has hardly been broken during the recent downturn with the exception of a brief stint on 1/14. To say the least it will be important for SPX to break this level in order to sustain a rally of any kind.
• If you are looking to eventually short this rally, I wouldn’t do it today while it is still tracking higher. These dead cat bounces after massive sell-offs can lead to some of the greatest rallies of all time.
• Confirming the head and shoulders pattern on the weekly chart of SPX/SPY will be critical for the bears if they are going to keep the downtrend going.
• Volume was above average yesterday but was still considerably light compared to recent sell-off levels.
• A break today above 1901 on SPX 30 minute chart will create the index’s first higher-high since the sell-off began and also confirm at the same time an inverse head and shoulders pattern.
• Downtrend on the 30 minute chart looks to be broken at the market open today.
• Of concern yesterday was the inability of the VIX to come off of the recent highs, only dropping 3.3% down to 26.69.
• There is a strong possibility that the market has formed a temporary bottom for now. Perhaps similar to that of what was seen in August 2015. Best case scenario would be a bottom similar to that of September. 
• T2108 (% of stocks trading above the 40-day moving average) rallied a meager 10% but only 8.2% of stocks are trading above their 40-day moving average at the moment. The Dow and Nasdaq did not take out the August lows, while the Russell broke below it ages ago. 
• A push above 1901 on the 30 minute chart would establish a higher-high on SPX. 
• A lot of option buying interest for $40 oil contracts yesterday.
  
• At one point on Wednesday, SPX was down about 12% for the year alone…let me remind you that we are still in January. 
• A dead cat bounce could easily take us up to 2000 in short order on SPX without violating the longer-term bearishness of this market. 
• While it may feel like the market is acting like “2008” again, the fundamental catalysts do not exist for that. Banks are not at the brink of disaster, real estate is not collapsing. Yes, the oil has collapsed, but oil has almost collapsed already 80% from 2014 highs and the market is down 12% from its 2014 highs. I’m not saying that this market is strong…. far from it, I am simply saying that comparing this market to 2008 is not an accurate comparison. 
• So far this is the worst start ever to a new year of trading for the stock market, even worse than the Great Depression.
• Plenty of gaps exist and waiting to be filled overhead.  

My Trades:

• Added one new positions to the portfolio yesterday. 
• Closed out one long position yesterday. 
• Currently 50% long, 50% Cash
• Looking to manage current positions this morning, if the market shows signs of holding current positions, I may add 1-2 new positions, but I will need to see a hard bounce off of the lows of the day. I will also look to possibly book profits on current positions as well.
  
• Join me each day for all my real-time trades and alerts in the SharePlanner Splash Zone

Chart for SPX: