Trading Plan for January 30, 2012

Economic Reports Due out (Times are EST): Personal Income and Outlays (8:30am)

Premarket Update (Updated 8:40am eastern):

• U.S. Futures are down moderately
  
• Asian markets traded with losses ranging between -0.5% and -1.7%
  
• European markets are seeing losses of roughly -0.9%
  

Technical Outlook (S&P):

• Strong doji-candle formed on the weekly chart last week, which often signals reversals in the market direction. 
• We should see the 50-day moving average cross with the 200-DMA tomorrow. 
• Last 2 trading sessions have been slightly above average in trading volume. 
• Russell has yet to show any weakness, closing at new recent highs, despite the S&P falling for a second straight day, and up last week almost 2% despite the S&P closing breakeven. 
• S&P coming off of overbought levels, in the very near-term, but still remains overbought on every other time-frame.
• We have yet to see the “buy-the-dip” mentality cease. Each market open, the bulls buy the opne, no matter the weakness, and recovers most if not all of the day’s losses. As long as this persists, the bears do not stand a chance. 
• A break of Friday’s lows would stick us below the 10-day moving average for t he first time in over 26 trading sessions. 
• 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/weeks. 
• 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. If the S&P closed below 1306, we will get the lower-low on the 30-min chart.
• 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:

• Last week should be a warning signal for the bulls to begin booking gains, or at the very least, tigtening up the stops to such a degree so that you preserve the large majority of the gains made to-date. 
• I don’t put much merit in the 50/200 crossovers with the exception of fading death-crosses, as they tend to yield positive results. 
• 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) last week 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: