Trading Plan for February 16, 2012

Economic Reports Due out (Times are EST): Housing Starts (8:30am), Jobless Claims (8:30am), Producer Price Index (8:30am), Bernanke Speaks (9am), Bloomberg Consumer Comfort Index (9:45am), Philadelphia Fed Survey (10am), EIA Natural Gas Report (10:30am)

Premarket Update (Updated 6:30am eastern):

• US Futures are seeing moderate weakness ahead of the bell. 
  
• Asian markets closed -0.3% lower.
  
• European markets are trading down about -1%. 
  

Technical Outlook (S&P):

• To put the year in perspective for the bears, today’s 7.3 point sell-off in the S&P was the 3rd worse decline of the year. For the Dow, it was the worse day of the year, and almost the first triple-digit loss of the year and we did open up at new highs and failed to keep them. 
• S&P saw price drop and close below the 10-day moving average. The 20-day moving average is around 1333. 
• Early morning weakness, would open the market below its near-term trend-line. 
• Slight increase in volume over the past few days. 
• The problem with Apple (AAPL) price action yesterday, should it continue, could bring heavy selling pressures to the broader market, considering it has become the bullish poster-child for the market. 
• 1351 on the S&P has been a huge price barrior. Breaking it, as we should see a new leg higher in the market. 
•  Nasty bearish engulfing pattern on the SPY.
• Price level 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 continues to mirror a distribution pattern. 
• The SharePlanner Reversal Indicator finally gave us a reversal signal both on the daily and weekly indicators. 

My Opinions:

• Particularly if AAPL continues to drop, I expect that the market will face further weakness today and in the coming days. 
• VIX is back above 20 (21.14) and that tends make bulls uneasy.
• Rumors continue to drive market hype intraday, don’t be surprised by anything that you see. 
• 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.
• Though we saw the market unable to buy-the-dip yesterday, one day doesn’t mean much – Each time we 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: