Trading Plan for April 9, 2012

Economic Reports Due out (Times are EST): None

Premarket Update (Updated 9:00am eastern):

• US futures are down in excess of 1% ahead of the market open. 
  
• Asian markets traded -1.2% lower.
  
• European markets are seeing mixed/flat results.
  

Technical Outlook (S&P):

• Today’s weakness is all about the huge miss on the employment number on Friday where the actual came in at 120k versus 201k expected. A rather large miss. 
• Thursday was significant in its own right as we closed below the 20-day moving average as well as the trend-line off of the December lows. 
• Today has the strong potential to be the first time the market has recieved any follow through on a 20-day MA break. 
• We also will open this morning at or near the long-term trend-line off of the October lows. 
• S&P also nearing oversold territory on the short-term. Mid-term we are coming slightly off of long-term levels, and long-term we are entrenched in overbought territory. 
• Bearish wedge pattern confirmed last week, and we are looking for follow-through on that pattern today (see chart below).
• While the intraday weakness may be impressive, the bears are unable on nearly every one of their ‘down-days’ to avoid the late day buying that tends to cut losses significantly. If the bears can avoid allowing this to occur today, an argument could be made that dip buying is becoming less enthusiastic.
• We are poised to open below 1386 which marks break down below significant price levels and out of price consolidation. The next two price levels to watch would be 1375 and 1340. 
• 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). Today would be the 4th such day of weakness. 
• 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.
• Based on today’s premarket strength, the 30-minute chart will have a notable breakdown that has formed. 
• 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:

• Market is beginning to breakdown and if we can close below 1386, then I believe that the market becomes more tilted to the short side for trading. 
• I’ll use today as a barometer on my existing 4 short positions. If they aren’t performing well in the wake of today’s weakness, I’ll close them out. 
• I will also look to close out those positions that are becoming clearly overbought. 
• Still one of the best trades out there is to buy any weakness in the afternoon and benefit from the bounce. Let’s see if that holds as well today. 
• I think there is a good chance that if we close down strong again today, that we could see a bounce tomorrow, causing shorts piling in today, to quickly cover. 
• 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: