Trading Plan for January 11, 2011

Economic Reports Due out (Times are EST): MBA Purchase Applications (7am), EIA Petroleum Status Report (10:30am), Beige Book (2pm)

Premarket Update (Updated 9am eastern):

• Futures are slightly down
• Asian markets were up about 0.5%
• Europe is the exact opposite down about 0.5% as a whole. 

Technical Outlook (S&P):

• The S&P clearly separated itself from a myriad of previous resistance levels with yesterday’s breakout-like move. 
• The downtrend formed off of the 5/2/11 highs would represent the next level of resistance which is currently at 1314.
• Index charts are overbought, and look poised for a correction in the coming days. 
• Volume was slightly better, but still weak. On charts like SPY, the volume is anemic. 
• The bulls could not break through the S&P October highs and close there, instead it closed just slightly below. 
• If price sells off hard and goes down to 1252, it would put price back inside of the Downward trend-line off of the 7/7 highs. 
• On the 30 min chart, we could be seeing the early stages of a bull-flag or a potential multi-day move to fill yesterday’s gap up. 
• There are still 3 gaps since late November that have yet to be filled, counting yesterday’s gap higher as well. 

My Opinions:

• I’m looking for a short-term bearish move to work off overbought conditions.
• Some divergences occurring with indicators and price, where stochastics and RSI, for example,  did not make a move higher with the price action that we saw, showing the potential for a false breakout. 
• If it can break 1293 as described above, I think we’ll a lot of buyers will start coming off of the sidelines and move back into equities.

My Portfolio:

• 13% Short
• Traded TZA and TNA for a small net loss yesterday. 
• Holding TZA overnight with a buy in price at $24.11
• I’ll look to day-trade this market today, and even possibly add some swing-trades to the portfolio as well. 

Chart: