Trading Plan for Jan 31, 2011

Current Long Positions (stop-losses in parentheses): SSO (48.97), ZBRA (38.10), 

Current Short Positions (stop-losses in parentheses): None

BIAS: 14% Long

Economic Reports Due Out (Times are EST): Personal Income and Outlays (8:30am), Chicago PMI (9:45am), Farm Prices (3pm)

My Observations and What to Expect:

• Futures are moderately higher prior to the open.
• Asian markets were mixed ranging from -1.2% up to 1.4%. European markets are seeing moderate selling.
• Friday’s sell-off completely caught the bulls off guard on Friday, while breaking down below the narrow price range, and the 10 & 20 day moving averages. 
• Major trend-line support for the market rests at 1272, which also coincides nicely with a “higher-low” on the existing trend.
• Volume was heavy on Friday, and kept the dip-buyers on the sidelines by closing near session lows. 
• 1300 on the S&P still represents major resistance in the short-term, as the market never closed above this important psychological price level. 
• Should we break below the September trend-line as mentioned above, the 50-day moving average will become the next logical support level, currently at 1249. 
• Egypt’s market action will be blamed for the sell-off on Friday, but in reality, it was due to the technicals showing the market being extremely over-extended and overbought, and in need of a correction to bring price back to reality. Ultimately, the market doesn’t care much about what is going on in Egypt, and the riots that are taking place, will likely become quickly forgotten. 
• There are a lot of similarities to what happened on Friday, and what happened back in April, when the market was topping out as well. Action going forward has a high probability of being very volatile and choppy. 
• Bearish divergences in previous trading plans, telegraphed the sell-off that we saw on Friday. 
• Will watch today to see whether the dip-buyers come back to the table to push this market higher in the short-term. 
• For the bears – Show overwhelming selling on any bounce attempt by the market, and ultimately break price below the 9/1 trend-line. 
• For the bulls – Hold Friday’s lows, and bounce as much as possible today, casting doubt in the bear’s mind, as to whether this market sell-off will be short-lived. 

Here Are The Actions I Will Be Taking:

• No new positions added to the portfolio on Friday. 
• Will be careful to add new positions to the portfolio today, until the market looks ready to resume its upward trend.
• Will likely focus more on day-trade setups until the market gives us a better idea in terms of direction. 
• Despite Friday’s market sell-off, I’ll be weary about going short until there is more technical damage done on the charts. 
• Follow me in the SharePlanner Chat-Room today for all my live trades and ideas.