Trading Plan for April 18, 2012

Economic Reports Due out (Times are EST): MBA Purchase Applications (7am), EIA Petroleum STatus Report (10:30am)

Premarket Update (Updated 8:00am eastern):

• US futures are slightly lower ahead of the opening bell. 
  
• Asian markets traded 1.6% higher. 
  
• European markets are trading in a range from -0.3% down to -1.4%.
  

Technical Outlook (S&P):

• Huge rally yesterday in the markets, recovering and closing above the 10 and 50-day moving averages. 
• Probably the biggest accomplishment was the fact that it managed to finish above Friday’s highs, showing the potential for an extended bounce. 
• Candle pattern from the last 3 days looks bullish. 
• Despite the significant bounce that we got yesterday, on the daily chart we are still looking at price formation that has a bearish-flag feel to it. 
• Volume was notably weak yesterday. 
• S&P well off of oversold levels. 
• If bearishness resumes, watch 1357. If we break this level, the next major test is around 1340. 
• On the weekly chart, we confirmed the bearish wedge pattern that we had been following for weeks. Very bearish development for the market. 
• 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

My Opinions:

• I still have a bearish stance on this market, but won’t hold it for long if we buy the morning weakness and rally yet again today. 
• Yesterday’s rally has the mix and feel of being mainly short-covering off of the news from Spanish bonds. 
• Biggest obstacle for the bears will be trying to keep the dip buyers from taking advantage of recent weakness, particularly since there hasn’t been a pullback since December – this is their first opportunity to load back up. 
• 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: