Trading Plan for December 1, 2011

Economic Reports Due Out (Times are EST): Jobless Claims (8:30am), Bloomberg Consumer Comfort Index (9:45am), ISM Manufacturing Index (10am), Construction Spending (10am), EIA Natural Gas Report (10:30am)

The Breakdown:

• Futures are slightly down heading into the open.
• Asia traded between 1.6% and 5.9% higher, while Europe is trading mixed/flat.
• Yesterday’s volume was the highest that we’ve seen, since the market bottomed on 10/4. 
• Volume surges like what we saw yesterday, especially when it practically doubles previous volume readings and averages, can represent looming reversals about to happen in the market. 
• At 1250 on the S&P, you have a descending trendline off of the October highs. I expect this to become resistance for the bears today. Breakthrough it, and this market should make a challenge fo the October highs at 1292.
• At 1264 you have the 200-day moving average. 
• Support for this market today lies at 1232 on the S&P. 
• Yesterday’s move took us above the 10,20 and 50-day moving averages with no resistance at all. 
• This is why shorting these market rallies are so dangerous, and why I warned all last week about adding new short positions to the portfolio, because these market rips are so violent and irrational, that it is an absolute capital killer for the bears who don’t go cash beforehand.
• Considering the move that we had on Monday and Wednesday, I would start looking to liquidate some long positions on this incredible strength and over 90 S&P points in 3 days.
• Worth noting as well, is the obvious head and shoulders pattern forming on the weekly chart. Should this be the case, I’d expect then that this market is reaching a short-term top very fast.
• Make sure that whatever you do, that you protect the gains that you have, and be ready for sudden and quick reversals in this market.
• My Conclusion: There is no way to tell how high this market goes, but the volatility is unbelievable. All it takes is for a negative rumor or two to take back this market right back to where it started on Monday, so don’t get too comfortable in your current long positions, and start tightening those stops significantly or taking profits on them.