Trading Plan for April 20, 2012

Economic Reports Due out (Times are EST): None

Premarket Update (Updated 8:30am eastern):

• US futures are moderately higher ahead of the opening bell. 
  
• Asian markets traded mixed/flat.
  
• European markets are trading 0.7% higher. 
  

Technical Outlook (S&P):

• The bears re-emerged yesterday but saw a bounce off of the lows as the bulls kept things from getting out of hand. 
• Bear flag still in effect and additional weakness today would see price breakout of the pattern and confirm an additional move lower. 
• Price moved back below the 10 and 50-day moving averages, and the 10-day MA is close to crossing the 50-day MA to the downside. 
• Alot of talk about the ominous head and shoulders pattern on the S&P since mid-February. We are currently forming the right shoulder. 
• Notable was the inability to climb back above the 20-day moving average for the third straight day, and the bear flag that is forming on the S&P over the last six days on the daily chart. 
• The previous trend-line off of the October lows has become resistance for price action on the underside. 
• S&P is actually nearing short-term overbought levels. 
• If bearishness resumes, watch 1357. If we break this level, the next major test is around 1340.
• Bulls need to get price back above 1401. 
• 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:

• Tendency over the last two end of week sessions (4/13 and 4/5) has been to sell off heavily into the close. 
• The bulls are in a “Show-Me” mode – it needs to prove that it can recover from the recent market bearishness. 
• RDC was sold yesterday for a 1.4% gain at $33.52 from $33.59. Sold  my long day-trade in ASH at $63.93 from $63.26 for a 1.1% gain. 
• I still hold four short positions in the portfolio: ABD from $11.17, BAK from $16.25, BLK from $196.97 and CAG from $25.85.
• I still have a bearish stance on this market, but could shift some if we  see a hard rally. 
• 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: