Trading Plan for January 18, 2012

Economic Reports Due out (Times are EST): MBA Purchase Applications (7am), ICSC-Goldman Store Sales (7:45am), Producer Price Index (8:30am), Redbook (8:55am), Treasury International Capital (9am), Industrial Production (9:15am), Housing Market Index (10am)

Premarket Update (Updated 9am eastern):

• U.S. Futures are slightly up.
  
• Asian markets averaged 0.5% in gains.
  
• Europe is slightly positive.
  

Technical Outlook (S&P):

• Yesterday, we saw the market open up strong, only to fade continuously throughout the day, and even accelerate as the day progressed. 
• While we’ve had no problem trading above 1293, the S&P still seems to be magnetized to this price, coming back to it each time.
• Russell shows a double top on the daily charts formed over the last three months.
• Short-term we are working off the over bought conditions, but intermediate-long-term shows us still well-overbought.
• Last four trading days we’ve seen the market fade the initial direction of the market.
• Volume was average in comparison to what we’ve seen over the last month.
• 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.
• 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.
• Market is up 14 out of the last 18 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 candles shows a market, that is only making progress through overnight surges, and unable to build off of that momentum once the market opens. Good sign of a tired market.
  

My Opinions:

• Yesterday’s action in combination with Friday’s action, has me leaning more to the bearish side, in what I think may be the start of at least a pullback of some kind.
• Strong pushes lower in the early morning are great opportunities to book gains (if you’re short) as the market tends to trend higher thereafter.
  
• Bears need a decisive day of follow through on what we’ve seen last Friday and yesterday, which was muddled at best for the bears. Little fear exists in this market.
  
• Careful, even if the conditions look perfect, of going heavily short at this juncture, until it becomes a little more obvious.
  
• 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:

• 15% short via TZA.
  
• Traded AFFY on a day-trade breakout that failed to do anything, losing 1.3% ($7.25 from $7.35). Traded TZA going from $23.55  up to $23.83. I showed a lack of patience with this trade though. Lesson learned.
  
• I’ll look to day-trade this market today, and add some swing-trades to the portfolio as well, should the conditions permit.
  

Chart: