Trading Plan for December 20, 2011

Economic Reports Due out (Times are EST): ICSC-Goldman Store Sales (7:45am), Housing Starts (8:30am), Redboook (8:55am)

Premarket Update (Updated 8am eastern):

• Futures are very strong, up in excess of 1% heading into the open. 
• Asian markets were up on average about 0.3%
• Europe is trading higher at about a 1.3% clip. 

Technical Outlook (S&P):

• After yesterday’s sell-off, the S&P looks destined to test the upward trend-line, which currently sits at 1196
• Today’s early market strength, keeps the market within the narrowing triangle, and thus, a range bounce pattern. 
• Expect a very light volume week – especially as we head towards the Christmas holiday, volume will dramatically drop off. 
• Early morning strength, if it holds, will cover the previous 4 days of bearish trading action. 
• S&P is short-term oversold. But doesn’t preclude the market from dropping lower, just that the risk trading to the short-side increases. 
• The S&P broke right throught the 1209 support level yesterday, but is looking to reclaim that short-term support level today. 
• Continue watching the VIX – it has not been mirroring the weakness of the broader markets in the past week of trading. 
• Trend-line off of the 7/7 highs, just above the 200-day MA on the S&P, continues to act as resistance to price as well.
• Note the larger downward channel that we are in as noted below.

My Opinions:

• I’m skeptical of whether this rally means anything of significance going forward. We are oversold short-term, so it probably shouldn’t be all that unexpected. 
• Yesterday’s sell-off had the look of need continuation to the downside, but we didn’t get that today, which fooled me into holding a short position overnight. 
• It’ll be intersting to see whether this large gap up is another profit taking opportunitity for the bulls to sell intraday on  before the end of the year. 
• The only way I could bring myself to adjust my bearish outlook on this market is if we break above the aforementioned downward trend-line off of the 7/7 highs. Then the entire outlook would be different for the market.

My Portfolio:

• 26% committed 13% long, 13% short. 
• I sold my overnight TZA position yesterday for a 3% gain. 
• I’ll continue to hold GLD (long) for now. A drop below its long-term trend line (back to 2008) would be reason for me to dump the position. 
• I day-traded TZA yesterday for additional gains and bought some more at the close to hold overnight for an average buy in at $29.11.

The Chart: