Trading Plan for February 27, 2012

Economic Reports Due out (Times are EST): Pending Home Sales Index (10am), Dallas Fed Manufacturing Survey (10:30am)

Premarket Update (Updated 7:00am eastern):

• US Futures are moderately lower heading into the open. 
  
• Asian markets traded mixed with Hang Seng trading -0.9% lower. 
  
• European markets are trading about -1.0% lower. 
  

Technical Outlook (S&P):

• Depending on where we open up at, and whether the S&P can continue trading lower throughout the day, if so, we’d have a bearish evening star pattern. 
• Should the early morning weakness hold, look for whether the S&P can push through the 10-day moving average around 1356-7.
• A major sell-off would put the 20-day moving average in play, which will be much harder to push through than the 10-day MA, and one that hasn’t been broken in over two months. 1345-6 will be the key level for price to push through. Expect support to, at least initially, kick-in. 
• The S&P made new highs on Friday, since hitting the October lows of last year. However, internal indicators, such as the Worden T2108 (% of stocks trading above the 40-day MA) made a lower-high). Indicators like the Relative Strength Indicator (RSI) failed to break through the highs from 2/8. This creates a divergence in the market, and one worth paying attention to.
• Friday’s afternoon’s trading session saw price action dramatically weaken into the close, while still managing to finish in the green yet again. 
• Volume was incredibly weak, and at Christmas holiday levels. 
• 30-minute chart on the S&P still looks healthy with uptrend still in place. 
• We’ve yet to see a sell-off this year that exceeded 1% to the downside. 
• 1370, when looked through the prism of a 15-year chart, represents a very strong price level where markets have historically reversed at. 
• 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. 

My Opinions:

• Despite the weakness we are seeing ahead of the bell, I have little confidence in the weakness holding. I fully expect the bulls to make a run early on at buying the dip. Whether their efforts can sustain themselves will be key at whether sentiment starts to shift towards the bears favor. The bears need to prove themselves.
• Market appears sluggish to me. I don’t consider it consolidation, because it is still marching higher, but the intraday action in doing so, appears to be listless and with less conviction than before. 
• I’m using January-February of last year as my analogue for trading this market – price action is nearly identical, as is the time frames too. With that being said, it is likely we see a pullback of worth here in the very near future. 
• Rumors continue to drive market hype intraday, don’t be surprised by anything that you see. 
• 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.
• Bears: Beware of the morning “just by the dip” market mentality. 

Chart: