Trading Plan for April 3, 2012

Economic Reports Due out (Times are EST): ICSC-Goldman Store Sales (7:45am), Redbook (8:55am), Factory Orders (10am), FOMC Minutes (2pm)

Premarket Update (Updated 9:00am eastern):

• US futures are mixed/flat ahead of the open.
  
• Asian markets traded in a range from -0.6% up to +1.3%.
  
• European markets are seeing losses of about -0.4%.
  

Technical Outlook (S&P):

• First day of the quarter/month saw a very impressive rally in equities. 
• Last time we made new highs in the recovery we subsequently sold off three straight days. With some weakness heading into today’s open, it is possible we see a similar scenario unfold. 
• The strength of the current trend, while it is still holding on, looks weakened, as its progression higher is becoming more volatile and suceptible to weakness. 
• 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). 
• Intermediate and long-term time frames are all very overbought still. 
• A break of 1391, would represent a short-term lower-low – 1386 would be much more significant. 
• 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. 
• Price-level resistance can be found at 1419 and then 1428. 

My Opinions:

• Another rally today like we saw yesterday and the bears will quickly lose any traction it was developing last week. A push back below 1386 or even 1391 would dramatically shift market sentiment. 
• I think today is critical for bulls and bears as to what it does with yesterday’s rally – if we sell-off today, I’m going to look for a test in the days ahead at 1391. Should we hold those gains and build upon them, then I’ll be looking for a similar rally like the one we saw on 3/7-3/19. 
• 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. 
• 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: