Today’s Trading Plan: Dead Cat Ready to Bounce

Technical Outlook:

• Heavy sell-off yesterday that saw yet another massive afternoon bounce recovering two-thirds of the losses before the close. 
• This was a major failure for the bears. Yet it is what’s been seen by this market time and time again over the last seven years. 
• SPX failed to break 2039 and hold it into the close, instead it closed at 2040 – the lower end of the chop zone. 
• I suspect that the market is setting up to bounce today and finish the week in the green, thereby ending the streak of three consecutive weeks of lower closes. 
• Objective for the bulls should be to get price back above the 20-day moving average which at the close yesterday was about 26 points higher at 2066. 
• For the bears, the goal should be to push price convincingly below 2039 and hold it into the close. 
• A break above 2060 on SPX would establish a higher-high on the 30-minute chart and change the short-term direction possibly of the market. 
• A close above 16.40 would have been big yesterday as it would have effectively push the index out of its current base. Instead it gave up all of its gains in the afternoon and closed at 16.32. 
• The massive head and shoulders pattern is still in play for SPX and even confirmed on the Dow Jones Industrial Average. However, I suspect a bounce may be in order for the market today
• Since the April 20th highs, SPX has now established with yesterday’s bounce off of the lows of the day, a perfect declining channel. The potential here to test 2073 is very possible in the days ahead. 
• T2108 dropped over eight percent yesterday with now only 43% of stocks trading above their 40-day moving average. 
• USO remains strong, but over the last three days has struggled to get over and close above its 200-day moving average. 
• Above average volume yesterday on SPY but below what we saw the day prior. 
• Today is options expiration. 
• The moving averages are all converging on current price action which is a sign of a market that hasn’t moved any where in a couple of months. 
• The last two times we saw this happen, a massive sell-off ensued (last August and December/January). 
• If SPX manages to dip below 2040, the ability for the market to move in much bigger chunks in either direction becomes very possible. 
• From 2040 to 2138 – you have a price range that is insanely choppy and continues to be such. 
• The 50-week and 100-week moving average have crossed two weeks ago to the downside. Last time this happened was 2001 before the tech correction and again in June 2008 before the mortgage crisis saw its major correction. 
• I believe at this point, profits have to be taken aggressively, and avoid the tendency to let the profits run – the market is in a very choppy range that has mired stock price for the past two years. Unless it breaks out of it and onto new all-time highs, then taking profits aggressively is absolutely important. 
• Historically the May through October time frame is much weaker than the rest of the year.

My Trades:

• Sold SPXU yesterday at $29.48 for a 4.2% profit.
• Covered ORCL yesterday at $38.80 for a 2.0% profit. 
• Did not close any additional trades
• Added one additional short position yesterday. 
• Currently 20% Short / 80% Cash
• Remain Short MA at $95.98 and one other stock. 
• Will consider adding 1-2 long positions if the market seeks to bounce higher today. 
• Join me each day for all my real-time trades and alerts in the SharePlanner Splash Zone

Chart for SPX: