Trading Plan for January 27, 2012

Economic Reports Due out (Times are EST): GDP (8:30am), Consumer Sentiment (9:55am)

Premarket Update (Updated 9am eastern):

• U.S. Futures are slightly lower
  
• Asian markets are trading in a mixed fashion, with little deviation from breakeven. 
  
• Europe is trading in a mixed fashion
  

Technical Outlook (S&P):

• Very bearish market session yesterday, as we gapped up strongly at the open, only to see a perpetual sell-off throughout the day, and to finish in the red. 
• Yesterday marked the first truly negative session for the year. 
• Typically when we gap above the previous day’s price action, and finish below the mid-point of the previous day’s up candle, that is considered a very bearish piercing candle pattern. 
• I did a post entitled “A Bullish Love Affair” where I show a five year chart, and the very strong downward, multi-year resistance pattern that we are currently testing. We were rejected at this price yesterday and could lead to further price decay in the coming days. 
• Volume was stronger today, than yesterday’s FOMC day and stronger than anything we’ve seen lately. This is interesting because it was the first legitimate down-day of the year. 
• 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. 
• Since the 19th of December, the S&P has not put in a single “lower-low” even on the 30-min chart. This needs to happen before the bears can do anything worth mentioning. 
• We’ve traded above the 10-day moving average for 25 straight days, and have finished in the green 19 times during that span (76% 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.

My Opinions:

• At the expense of sounding redundant, at these levels, and the rally that we’ve seen in recent weeks, it would be foolish to not begin booking profits or tightening the stop-loss on existing positions. 
• Yesterday’s price action made it more appealing for traders to begin dipping their toes in the water with some short positions. On the flip side, it should be a wake-up call for bulls, and the possibility that this rally is running out of gas. 
• 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. 

My Portfolio:

• 25% Net Short
  
• Initiated a long position in (TZA) Monday evening at $22.26
• 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: