Trading Plan for February 7, 2012

Economic Reports Due out (Times are EST): ICSC-Goldman Store Sales (7:45am), Redbook (8:55am), Bernanke Speaks (10am), Consumer Credit (3pm)

Premarket Update (Updated 9am eastern):

• US Futures are slightly lower heading into the open. 
  
• Asian markets were mixed in trading. 
  
• European markets are down ranging from -0.5% down to -0.9%.
  

Technical Outlook (S&P):

• Yesterday was a good day of consolidation for the markets, forming a doji-dragonfly candle at the close. 
• This was similar price action to what we saw during the 1/26-1/31 pullback. A few more days of similar action would be helpful to cool off the markets some. 
• It is key for the S&P to hold on to 1331, as it represents the previous multi-year resistance level (now support). 
• Volume was notably lighter yesterday on the market weakness. 
• Trend-line support is at 1295 off of the 11/28 lows. 
• The S&P, as well as other indices (particularly the Russell), have gone completely parabolic in their price action of late. 
• We remained as overbought as ever, which eventually has to be reconciled. 

My Opinions:

• Sideways trading over the next few days wouldn’t surprise me in the least bit here, even over the new week or so. In fact, it would be considered healthy for the markets to do so. 
• This market has sustained its buying action far longer than I thought was possible. But trying to jump in front of this market and shorting it is a dangerous exercise.
• 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.
• This rally is due in large part to the fed easing that will last through 2014. My guess is that it will be difficult for the bears to stomp on the bears while this persists. 

Chart: