Today’s Trading Plan: More Gaps and Traps

Technical Outlook:

• SPX attempted to bounce yesterday off of its lows of the day, and while it finished in positive territory, the breadth of the advance was very unconvincing as was the actual price advance of only 0.2%. As a result, no reason to believe this market is bouncing is currently warranted. 
• Futures down another 1.6% ahead of the open which puts Monday’s lows at risk of being taken out. 
• Also at stake is whether SPY closes below $200 or not. A break below that level would rapidly increase the likelihood that we see a re-test of the August/September 2015 lows. 
• SPY volume level yesterday was noticeably weaker yesterday than the first day of the trading year (Monday) and just a shade below average levels of late. 
• SPX has a small trend-line developing on the 30 minute chart of SPX that was holding up nicely over the past 14 bars, but barring a miraculous recovery in futures prior to the open, this trend-line will be taken out as will Monday’s lows. As a result, the minor bounce yesterday should be seen as nothing more than a lower-high at this point. 
• SPX closing in on 100 point correction since the 12/29 highs were made when counting the early morning weakness. 
• From a short perspective, you have to be very careful about adding new positions following such a large gap down, and getting short the night before carries its own risk following a strong three day sell-off and a minor bounce yesterday off of key support at $200 on $SPY. Staying on the sidelines with the trading until the edge becomes more apparent and risk more manageable is key here. 
• VIX dropped yesterday by 6.5% down to 19.34 and below the pivotal 20 level. Any sell-off in the market today may find some difficult with the VIX trying to break back above 23 level if the indicator can rally that high. 
• Despite trading right near the December lows, the T2108 (% of stocks trading above the 40-day moving average) is no where near trading at its December lows (13% in December vs. 27% currently). This would be considered a bullish divergence, as indices are struggling with possibly establishing new breadth lows today. 
• China continues to hold a heavy sway over the markets, and the main culprit of late for the wild price swings. Not to mention an alleged nuclear H-Bomb test (more likely an A-Bomb though) by North Korea adding fuel to the fire heading into the open today. 
• Extremely volatile market conditions right now; entry timing at this stage is very difficult and very essential to successful trading when this unpredictable. 
• 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:

• Traded UPRO yesterday (day-trade) for a 0.4% gain. 
• Did not not hold any positions overnight. 
• Currently 100% Cash
• Large overnight gaps are making it difficult to establish new positions, as the majority of the move is happening overnight and not during the trading session. Ideally, you would like a 33 point move, as is currently seen in the futures, to happen during the trading session, and not when the market is closed, as it takes the large majority of the profit potential away, unless the market chooses to reverse back to the upside. 
• Nonetheless will look to play the market in either direction today where a solid edge can be gained and traded favorably. 
• Join me each day for all my real-time trades and alerts in the SharePlanner Splash Zone

Chart for SPX: