Trading Plan for February 14, 2012

Economic Reports Due out (Times are EST): NFIB Small Business Optimism Index (7:30am), ICSC-Goldman Store Sales (7:45am), Retail Sales (8:30am), Import and Export Prices (8:30am), Redbook (8:55am), Business Inventories (10am)

Premarket Update (Updated 9am eastern):

• US Futures are slightly down prior to the open
  
• Asian markets saw trading higher by about 0.4% on average
  
• European markets were mixed/flat despite fury of downgrades after yesterday’s close. 
  

Technical Outlook (S&P):

• Nice bounce yesterday following a significant sell-off on Friday that had dampened the market’s mood. 
• Very close to breaking out to new recent highs at  1354, which would likely lead to us testing 1370 (5/2/11 highs) shortly thereafter. 
• If today’s early morning weakness holds, watch support at the 10-day moving average which should be around 1343
• After that, price support lies at 1326 and then again at 1300. A break of the latter in coming days would drastically change market behavior/outlook. 
• 30-min chart shows a strong  uptrend still in place with continuous higher-highs and higher-lows.
• Mini-bullish island reversal formed on SPY yesterday. 
• Volume was extremely weak yesterday, especially considering the price move we saw. 
• We are coming off of short-term overbought conditions. 
• The SharePlanner Reversal Indicator finally gave us a reversal signal both on the daily and weekly indicators. 
• The S&P closed in negative territory for the first time in five weeks (weekly). 

My Opinions:

• Downgrades of any kind apparently have little effect on the market anymore. 
• The market seems like it needs to go down some before it can legitimately make another significant move higher. A nice shakeout of bulls from their current positions would go a long ways into forming the next leg up in the market. 
• While recognizing a lot of head winds facing the market from an economic standpoint, the market seems to be pricing everything that we know and expect about the European crisis, and with a solid earnings season as well as easing by the Fed, we could see continued price appreciation this year (particularly with an incumbent President up for re-election).
• The daily price action, beyond the obvious ‘buy-the-dip” action has been to breakout and move higher, followed by a few days of consolidation and slight pullback. Rinse and repeat.
• We have yet to see the “buy-the-dip” mentality cease. Each market open where weakness is present, the bulls buy the open, no matter what, and recovers most if not all of the day’s losses. As long as this persists, the bears do not stand a chance, and the bull rally will prevail.

Chart: