Trading Plan for April 2, 2012

Economic Reports Due out (Times are EST): ISM Manufacturing Index (10am), Construction Spending (10am)

Premarket Update (Updated 9:00am eastern):

• US futures are slightly negative ahead of the open.
  
• Asian markets were mixed/flat.
  
• European markets are seeing losses range from -0.1% to -0.8%
  

Technical Outlook (S&P):

• Friday’s price action, and in particular the last three sessions represents a morning start price pattern, which is bullish for stocks. 
• Throughout the rally since December, mild pullbacks have usually been in the form of 3-4 days of selling with notable dip buying occurring throughout (note the long lower candle shadows throughout the selling days). 
• As a result, today looks prime for a bounce, despite trading slightly in the red at the moment. 
• Volume was much higher than anything we’ve seen of late. Most likely due to quarter-end window dressing. 
• Short-term, the market is coming off of overbought levels. Intermediate and long-term are all very overbought still. 
• Watch the previous lower-low also at 1386 as a break and close below that level would represent the first lower-low on the daily charts since the rally began back in November. 
• 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. Yesterday we filled the 3/27 gap perfectly before bouncing. 
• 30-minute chart looks healthy, putting in higher-highs and higher lows. 
• Bearish wedge pattern forming in the intermediate term has yet to confirm, but looks ominous. 
• 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. 
• The next price-level resistance can be found at 1419 and then 1428. 

My Opinions:

• Observing Friday’s price action and previous pullbacks throughout this bull rally, I’d say the market is yet again setting up for another push to new highs. I could see this happening this week too. 
• With that said, the market is not marching effortlessly higher as it was earlier this year. During the month of March, the push higher was a bit more staggered. 
• If for some reason it could break below the 3/23 lows, the tone and outlook of the market would change dramatically.
• 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?
• A lot of bulls getting pulled off of the sidelines, and a lot of people are becoming over confident (though none of them ever realize this) which is usually a time you want to be nervous about being too aggressive to the long-side. Keep trading with the trend, just be cautious. 

Chart: