Trading Plan for August 9, 2012

Pre-market update (updated 7:30am eastern):

• European markets are trading -0.4% lower. 
• Asian markets traded 1.0% higher. 
• US futures are trading slightly lower. 

Economic reports due out (all times are eastern): International Trade (8:30am), Jobless Claims (8:30am), Wholesale Trade (10am), EIA Natural Gas Report (10:30am)

Technical Outlook (SPX):

• Fourth straight day of gains in the SPX. 
• Low volume continues to be the norm for the rally over the same time period. 
• Market remains well overbought on multiple time frames. 
• Solid higher-high with doji-hammer candle yesterday, could be the signal for a pullback here. 
• For a while, the rally off of the 6/4 lows looked more like a bear-flag forming, but no longer with the strength in the market over the last month. 
• If the SPX is to finish again in the green today, it would be the first 5-day rally since the 3/7-3/12 period from earlier this year. 
• SPX poised to make a move to 1422 and challenge the year’s highs. 
• Biggest news so far this week, technically, has been the SPX breaking out of the descending trend-line off of the 4/2 highs (as noted below). 
• Volume continues to be extraordinarily light over the past few days and if you compare it to this time last year, it is as much as 30% less. 
• It’s not uncommon to see large market rallies going into an incumbent re-election – (post later on this today).
• 30min chart is beginning to look like a head and shoulders pattern, which spells trouble for the markets, if the neckline of the pattern confirms. 
• If you look at the 4 previous higher-highs in the market since the 6/4 bottom, then one could conclude that we’ve reached another temporary top, and are prime for another pullback. 
• 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 1353.
• SPX trading above all significant moving averages (10,20,50,200).
• VIX had a large reversal yesterday and remains below 16
• If another sell-off were to ensue, watch for a break and close below 1354 for a new lower-low in the market.  
• Downside reversal signal still remains intact on the SharePlanner Reversal Indicator. 

My Opinions & Trades:

• Sold CNQ yesterday at $30.28 from $28.78 for a 5.2% gainer. 
• If the market shows signs of getting top heavy and a possible pullback, I may consider adding 1-2 short positions to hedge my 4 current long positions. 
• Market could rally higher  at this point, but I’d rather wait for a pullback occur first before increasing my long exposure. 
• Remain long RHT at $56.19, AIG at $32.46, MDT at 38.15 and AMZN at $233.90. Short BRO at $25.65

Charts: