Trading Plan for January 24, 2012

Economic Reports Due out (Times are EST): FOMC Meeting Begins, ICSC-Goldman Store Sales (7:45am), Redbook (8:55am)

Premarket Update (Updated 9am eastern):

• U.S. Futures are mixed/flat.
  
• Asian markets Asian markets finished about 0.3% higher on the day. 
  
• Europe is showing weakness ranging from -0.8% down to -1.1%. 
  

Technical Outlook (S&P):

• Large doji candle formed on the S&P daily chart yesterday, which represents indecision on behalf of the market. 
• Based on today’s open, we are poised to fill the gap up from last Thursday. 
• Speaking of gaps, we still have the recent gap ups from 1/17 and 1/3 left unfilled, which if we were to eventually fill them, would break the trend-line off of the October lows. 
• Volume still remains unimpressive and on par with recent readings.
• Be aware that we have the FOMC Meeting, State of the Union Address and GDP report this week, all which can hold heavy sway over the market. 
• 30 minute chart shows a nice head and shoulders pattern forming, as does the 5 minute chart. 
• Today’s weakness will open us below the descending trend-line off of the 5/2/11 highs. 
• We’re at overbought levels, that practically always leads to a pullback of some kind in the short-term.
• We’ve traded above the 10-day moving average for 22 straight days, and have finished in the green 18 times during that span (82% of the time).
• Bull flag mentioned yesterday on the 30-min chart, broke out but was unable to sustain the gains. 
• Last January we marched higher in all the indices in similar fashion in similar fashion to what we are seeing now, then on the 28th of the month, there was a major sell-off out of nowhere. I would not be surprised to see a similar scenario between now and the end of the month as well.
• 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 1278, 1261, and long-term support off of the October lows lies at around 1242. The market isn’t anywhere close to threatening these levels.
• There still remains unfilled gaps from 11/28, 1/3, and 1/17. Highly, highly unlikely all four of these gaps go unfilled for very long.
  

My Opinions:

• If you’re short this market, and we get a strong push down in the first hour of trading, more likely than not, you’ve got your morning lows and should look to book some gains. 
• Despite how promising any sell-off looks, be aware that the market at some point, will try and stage a rally.
• I don’t think there will be anything significant out of tonight’s State of the Union Address (be more of a glorified campaign speech).
• This is a hard place to be at in the market. Because initiating new long positions is dangerous, because we know we are absolutely primed for a pullback of some kind, and to short the market has its own set of problems as well, considering how resilient this market is right now.
• We are definitely seeing the January effect in full swing and the big question is, does it fizzle out like we saw last year, or do we continue to trend higher through 2012?
• Bearish sentiment is at a 6 year low, which is a prime opportunity for the bulls to have the carpet pulled out from underneath them.
• Much of this rally, has more to do with the bears being squeezed, than it does with the bulls being inspired as evidenced by the low volume levels.
  
• Some divergences occurring with indicators and price, where the RSI, for example, is not making a moves higher with the price action that we saw, showing the potential for a false breakout. 

My Portfolio:

• 25% Net Short
  
• Closed Valero (VLO) out yesterday at $23.55
• Initiated a long position in (TZA) yesterday at $2
• I’ll look to day-trade this market today, and add some swing-trades to the portfolio as well, should the conditions permit, with little desire to hold through Wednesday’s FOMC Announcement.
  

Chart: