Trading Plan for January 19, 2012

Economic Reports Due out (Times are EST): Consumer Price Index (8:30am), Housing Starts (8:30am), Jobless Claims (8:30am), Bloomberg Consumer Comfort Index (9:45am), Philadelphia Fed Survey (10am), EIA Natural Gas Report (10:30am), EIA Petroleum Status Report (11am)

Premarket Update (Updated 9am eastern):

• U.S. Futures are up moderately heading into the open.
  
• Asian markets averaged 1.1% in gains.
  
• Europe is up about 1% in early trading.
  

Technical Outlook (S&P):

• Yesterday was an absolute back-breaker for the bears, as they added much of the rally’s fuel
• Volume continues, even on strong trending days, to be light.
• We’ve traded above the 10-day moving average for 19 straight days, and have finished in the green 15 times during that span.
• Watch for major technical resistance today at 1313 off of the 5/2/11 market highs downtrend.
• Market is absolutely due for a pullback – “when” is the big question. Last January we marched up nicely in similar fashion, then on the 28th of the month, there was a major sell-off out of nowhere. I would be surprised to see a similar scenario between now and the end of the month as well.
• Russell shattered the double-top mentioned yesterday.
• 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.
• 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 isn’t anywhere close to threatening these levels.
• 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. 

My Opinions:

• I wouldn’t recommend shorting this market, as it is in all-out attack mode, and could continue trending higher longer than we think is possible. Much of yesterday’s rally were shorts being squeeze and sharing a similar sympathy.
• Going long is the safest bet, but we are extremely overbought, so if you are going to hold at these levels overnight, I’d do so with smaller-than-usual sized position.
• Some divergences occurring with indicators and price, where stochastics and RSI, for example, are not make a moves higher with the price action that we saw, showing the potential for a false breakout. 

My Portfolio:

• 100% cash
  
• Took a 3% loss on TZA closing at $23.05
• I’ll look to day-trade this market today, and add some swing-trades to the portfolio as well, should the conditions permit.
  

Chart: