Trading Plan for December 5, 2011

Economic Reports Due Out (Times are EST): Factory Order (10am), ISM Non-Manufacturing Index (10am)

The Breakdown:

• Futures are gapping higher in excess of 1% as we head into the open. 
• Asia traded about 0.6% higher, while Europe is trading on average about 1% higher. 
• On Friday we tested the 200-day moving average and failed to break through it. For the remainder of the day we saw a slow steady serving of the market selling-off, and erasing the entire day’s gap-up. 
• Today we are staring at another significant gap up, which will once again open us up above the descending trend-line on the S&P. 
• Counting today’s likely gap-up, we are looking at 3 significant gaps in the charts, in the last 6 days, that have yet to be filled. 
• Volume was relatively light all of last week, with the exception occurring on Wednesday. 
• S&P is now entering overbought territory. 
• Be very suspicious of the longevity and legitimacy of this market. To me it just reeks of another overdone bear-market rally, which tends to be extreme and exaggerated when they occur. This kind of action is not conducive to a bull market. 
• Volume surges like what we saw Wednesday, especially when it practically doubles previous volume readings, can represent looming reversals about to happen in the market.
• If we are able to close above 1246 on the S&P, there is a good chance that we will push even higher in the short-term. 
• At 1264 you have the 200-day moving average.
• If the head and shoulders pattern forming on the weekly chart holds, then there is limited upside in the market from there. 
• My Conclusion: I’m really indifferent to the action that we are seeing this morning. My final decision on the short-term direction of this market will come off of where we finish at the close. Above 1246 at the close, I’ll shift my short-term bearish sentiment.