Trading Plan for August 20, 2012

Pre-market update (updated 8:30am eastern):

• European markets are trading 0.5% higher. 
• Asian markets traded 0.8% higher.
• US futures are mixed ahead of the opening bell. 

Economic reports due out (all times are eastern): Chicago Fed National Activity Index (8:30am)

Technical Outlook (SPX):

• Friday’s small rally takes us to the cusp of breaking 1422 and posting new recovery highs. 
• There’s no doubt that the bulls could use this resistance barrier overhead to take some profits and as a result we see a pullback in equities. 
• If we don’t break above the 1422 mark, what you want to look for, in terms of a healthy market, is consolidation near the highs. A strong pullback would put that in major jeopardy. 
• The 10-day moving average is trailing price nicely and is offering solid support, but is close to parabolic. 
• Volume has increased over the last two days and is a welcomed sign. 
• We are back into overbought territory in the short and long-term.
• VIX is at unbelievably low levels that  haven’t been seen since 6/2007!
• You may also see a pullback to 1405, which is the top consolidation range the market pulled out of. That too may offer a level of support for SPX as well before eventually breaking through 1422. 
• Since the pullbacks off the 6/4 bottom, the pullbacks have ranged around 30-60 points each time, which would give us a range of 1390-60.
• It’s not uncommon to see large market rallies going into an incumbent re-election.
• One area of concern is the 3 large gaps off of the 6/4 lows that remain unfilled, including 6/6, 7/26, 8/3
• At this point, uptrend support rests at 1361.
• SPX trading above all significant moving averages (10,20,50,200).
• If another sell-off were to ensue, watch for a break and close below 1354 for a new lower-low in the market.  

My Opinions & Trades:

• No new positions added on Friday. 
• Current stop-losses have been adjusted across the board. 
• Stop-Loss in ARUN moved up to $17.07
• Stop-loss in AMZN moved up to $236.00.
• Stop-loss in RHT move up to $58.27. 
• HE Short stop-loss has been has been tightened to 27.73. 
• BRO Short stop-loss has been has been tightened to 25.85.
• Moved my stop-loss in MDT up to $40.37. 
• Going to consider any sell-off as opportunities to buy stocks on the cheap. Dip buying should be the norm until a lower-low is put in place.
• Remain long ARUN at $16.79, MDT at 38.15 and AMZN at $233.90. Short BRO at $25.65, HE at $28.45.

Charts: