Trading Plan for January 25, 2012

Economic Reports Due out (Times are EST): MBA Purchase Applications (7am), FHFA House Price Index (10am), Pending Home Sales Index (10am), EIA Petroleum Status Report (10:30am), FOMC Meeting Announcement (12:30pm), Chairman Press Conference (2:15pm)

Premarket Update (Updated 9am eastern):

• U.S. Futures are down slightly, while the Nasdaq is showing moderate strength from the Apple (AAPL) earnings report. 
  
• Asian markets finished about 1.1% higher on the day. 
  
• Europe is showing weakness of about -0.6%
  

Technical Outlook (S&P):

• Despite opening lower yesterday,  the market found that bid-source and managed to erase most of the day’s gains and just barely finish in the red (victory for the bulls). 
• Like Monday, we finished the day with another doji candle. 
• We have the Fed’s 12:30pm FOMC Statement which will create a surge of volatility. Be prepared and ready. 
• Whether this market can sustain itself to the upside is anyone’s guess long-term. But Short-term, there needs to be a pullback to 1249-1270. 
• Volume came in below average yesterday. 
• Strong uptrend in place on the 30 min chart, but the 5 min chart shows more uncertainty at the moment, and a potential for a head and shoulders pattern. 
• Speaking of gaps, we filled the 1/19 gap nicely yesterday, but still have the recent gap ups from 1/17 and 1/3 left unfilled (as well as 11/28 too), which if we were to eventually fill them, would break the trend-line off of the October lows. 
• State of the Union address from last night was uneventful from a market standpoint. 
• We’ve traded above the 10-day moving average for 23 straight days, and have finished in the green 18 times during that span (80% of the time).
• 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. 

My Opinions:

• Recent Apple earnings reports has been a ‘sell-the-news’ event for the broader indices. AAPL has also seen weakness in recent past once the market opens (though still finishing higher overall). 
• 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 move higher with the price action that we saw, showing the potential for a false breakout. 

My Portfolio:

• 15% Net Short
  
• Initiated a long position in (TZA) Monday evening at $23.27
• 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: (No Chart Today)