Trading Plan for April 11, 2012

Economic Reports Due out (Times are EST): MBA Purchase Applications (7am), Import and Export Prices (8:30am), EIA Petroleum Status Report (10:30am), Beige Book (2pm), Treasury Budget (2pm)

Premarket Update (Updated 9:00am eastern):

• US futures are flat ahead of the market open.
  
• Asian markets traded about 0.9% lower. 
  
• European markets are trading about 1.0% higher. 
  

Technical Outlook (S&P):

• Major breakdown in the market yesterday slicing through the 50-day moving average. 
• The extreme bearishness yesterday and closing at the lows of the day (only the second time that has happened this year) sets us up perfectly for a bounce today. 
• Earnings season kicked off with Alcoa (AA) yesterday and the response has helped to add a floor to the selling in the broader markets. 
• Bulls need to use today’s morning strength to try and recover as much of yesterday’s losses as possible, and to get back above 1375 which is the closest resistance level overhead. 
• Volume was elevated yesterday. 
• The trend-line off of the October lows was broken. 
• Price broke down below price consolidation at previous highs, and in the coming days and weeks ahead could get down to 1340. 
• The 30-min chart is well oversold and shows the need for a dead-cat bounce. 
• Previous sell-offs lasted 3-4 days with notable dip-buying that occurred. The selling over the last 5 days has not seen any similar characteristics and should be a cause for concern for bulls. 
• One thing that is very concerning to me is the fact that we have about 3 gaps, dating back to 3/6 that have yet to be filled by the markets. We now only have 1 gap remaining from 3/6
• One major concern for equities is the % of stocks that continue to trade below its 40-day moving average and that continues to drop daily. 

My Opinions:

• I think the bears should sit back today and let the bounce play out today and possibly tomorrow, but ultimately use the strength to reload their short positions. 
• Covered position in PANL yesterday for a 6% gain at $33.98, AMTD for a 3.9% gain, PGN for a 1.1% gain, and sold ARNA for a 2.4% gain. 
• Bought WLT at $58.19 for a bounce play. Still holding JCP and SHPGY. 
• Will look to book gains in long positions today and reload some of my short positions. 
• I expect the market to bounce today after being down four straight days. At this point, there are too many people that are still desperate to chase this rally, that they’ll buy the dip here. How long it lasts will determine the underlying weakness in the markets. 
• This is one of the strangest markets that I’ve seen, because traditional indicators of market reversals or signs showing it being overheated are basically worthless right now. Euro dropping has been irrelevant, market negatives have been inconsequential. Much of the rally is in conjunction with favorable Fed policy that continues to allow for this eye-shattering rally. Which hasn’t that really been the case since March ’09?

Chart: