Trading Plan for January 17, 2012

Economic Reports Due out (Times are EST): Empire State Manufacturing Survey (8:30am)

Premarket Update (Updated 9am eastern):

• Futures are strong on the heels a strong China GDP.
  
• Asian markets were up from 0.9% up to 3.2%
  
• Europe is showing positive gains averaging about 1.4%.

Technical Outlook (S&P):

• Friday’s action saw the S&P sell off nearly 20 points in the early morning, only for the market to spend the rest of the afternoon rallying higher and recovering nearly 3/4 of those losses.
• Over the past 3 months we have rarely had a trending down-day, meaning the market continues to put in lower-lows and lower-highs. Instead, we get a strong push in the morning, followed by a brief basing pattern, and finally a rally in the afternoon that wipes away much of the day’s losses. Remember this going forward.
• Overnight the S&P futures formed a head and shoulders pattern on the 5 minute chart, that could  ominously lead to the market giving up some or all of its gains.
• Volume levels still remain flat in comparison to recent weeks. Seasonally it is very low.
• Issues taking place in Europe is gradually creeping back into the economic picture, particularly with the S&P downgrading a number of countries, and threatening to do so with a number of others.
• 1313 is the key level on the S&P for the index to break down and through, as it would technically end the down-trend that we’ve been on since reaching the 5/2/11 highs. 1300 will also be an important psychological level as well.
• Short term support for the S&P lies at 1255, and long-term support off of the October lows lies at around 1228. The market doesn’t appear to be anywhere close to threatening these levels.
• No need to remind you have overbought we are right now.
• Market is up 13 out of the last 17 sessions.
• There still remains unfilled gaps from 11/28, 1/3, and 1/10. The latter two would make it seem likely that we need them to be filled before we can have any substantial move upward. 
• On the 30 minute chart we are looking very toppy/distributive
  

My Opinions:

• At this point I’ll trade higher  with the market by focusing mainly on trade setups to the long side.
  
• Bears would ideally liked to of seen some follow through today, and that is still possible, which would help the bear case out quite a bit if we an finish today in the red. 
• Bull runs like this can seemingly go on forever. You have to build your short watch-list and at the same time take advantage of the current upside-strength.
  
• There seems to be heightened risk going long in this market, at this juncture. Extremely overbought. If you want to get long on this market beyond day-trading, wait for a cooling period first.  
• 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. 

My Portfolio:

• 100% cash.
  
• I am looking to get more active on the equities side, and not just trade TZA and TNA this week.
  
• I’ll look to day-trade this market today, and add some swing-trades to the portfolio as well, should the conditions permit.
  

Chart: