Today’s Trading Plan: All About That Bounce

Technical Outlook:

• Big rally following a sell-off yesterday of more than one percent that ultimately saw SPX finish slightly in the green and sporting a nice hammer candle, which is often times indicative of a short-term bottom/bounce going forward. 
• SPY volume was slightly less than what we saw the previous two trading sessions, but very elevated and above average still. 
• A market bounce this week, could see a rally that takes price up to the 1990-2010 area before the market looks to push price back lower again. 
• Trend-line off of the February 2014 lows shows a perfect market bounce off of the rising support level. This is best seen on the weekly chart. 
• VIX dropped 10% down to 24.30 yesterday – a pretty strong sell-off despite only a 1 point gain on SPX. 
• T2108 (% of stocks trading above the 40-day moving average) still heavily oversold and sitting at 14% after falling 2 points yesterday. 
• Terrorist attacks in Turkey are actually helping the market rally today as it tends to cause oil to rally during such events. Since the attacks, oil has rallied 3.5% off of its overnight lows and /ES futures has rallied 30 points off of its overnight lows due to the strength in oil. 
• The same banks that are right now calling for $20 oil are the ones just a few years ago saying that we’d be trading over $200/barrel right now. 
• For the bulls, look for a move that allows price to close above the 5-day moving average. Yesterday it closed at 1956, and will likely be somewhere in the 1940’s today. 
• Earnings season started yesterday with Alcoa (AA) which had a favorable reaction to their earnings report. 
• Look for earnings to play a far greater role this quarter on market direction as the initial Fed rate hike is now in the rear view. There are a lot of concerns out there that earnings will be weak across the board. 
• SPX declining channel on the 30 minute chart broke yesterday going back to 1/5, which created a strong pop in the markets as it traded into the close. 
• Last week marked the worst start to a new year ever and the worst week for stocks in over four years. 
• If you look at the weekly chart of SPX going back to May 2014, there is not doubt a heavy amount of distribution unfolding in this market. 
• Plenty of gaps exist and waiting to be filled overhead. 
• From yesterday: “Rising support off of the February 2014 lows suggests a possible bounce off of support at 1901.”  Market bounced perfectly off of this level yesterday with lows at 1901.  
• China managed to finish 0.7% higher last night. 
• Very careful trading in this market at this point in time. Take profits aggressively. 
• The major moves in the indices are taking place while the market is closed. 
• Gap risk in both directions is a significant issue right now for traders. 
• Potential head and shoulders pattern forming on SPY going back to November of 2014. Though a very sloppy one. 
• Lots of theories floats around January stock performance, from the first day, first three days, and first week of trading being a barometer for the returns of the rest of the year. I don’t put much weight behind these theories, and find them highly circumstantial.   
• January has been a very volatile month in recent years to trade. Careful navigating it. 

My Trades:

• Added two new long positions to the portfolio on Friday. 
• Did not sell any positions on Friday.
• Currently 30% long, 70% Cash!
• I will be looking to play the market to the long side this morning with another 1-2 possible swing-trades, but careful not to get over exposed due to the current nature of the market and the overnight risks it presents. 
• Join me each day for all my real-time trades and alerts in the SharePlanner Splash Zone

Chart for SPX: