Trading Plan for April 4, 2012

Economic Reports Due out (Times are EST): MBA Purchase Applications (7am), ADP Employment Report (8:15am), ISM Non-Manufacturing Index (10am), EIA Petroleum Status Report (10:30am)

Premarket Update (Updated 9:00am eastern):

• US futures are moderately lower. 
  
• Asian markets traded -2.0% lower. 
  
• European markets are seeing losses of about -1.5%.
  

Technical Outlook (S&P):

• Considering the strength we saw on Friday, it is quite surprising the sudden shift in market sentiment since then. 
• While the intraday strength might be impressive, the bears are unable on nearly every one of their ‘down-days’ to avoid the late day buying that almost always cuts losses by over half. 
• We should be opening up somewhere near around 1399 which would give us an immediate test of the major trend-line off of the December lows. 
• Gold will also be opening up below a major trend-line that has not been broken in the least bit since 2009 – GLD is a must watch today. 
• Two additional price levels that I’m watching is whether we can break below 1391 and then again at 1386 – both would represent notable shifts in market sentiment – a close below these levels is what you should be watching for. 
• This pullback is acting very similar (so far) to the one we saw last week after making new recovery highs. 
• The strength of the current trend, while it is still holding on, looks weakened, as its progression higher is becoming more volatile and susceptible 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. 
• 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. Could finally see a confirmation today.
• 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:

• Expect the dip-buyers to come in full force at some point today. They always do. 
• I need to see a strong down-day where we close at the lows of the day, before I start to gain any confidence in the short-term bearish prospects of this market or that we might actually be rolling over. 
• We are seeing a large gap down today, which in the past has attracted dip buyers. 
• As mentioned yesterday, it was important to see what happened after Monday’s rally, and at this point I expect a steady pullback similar to what we saw in the middle of last week. 
• 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: