Trading Plan for January 31, 2012

Economic Reports Due out (Times are EST): ICSC-Goldman Store Sales (7:45am), Employment Cost Index (8:30am), Redbook (8:55), S&P Case-Shiller HPI (9am), Chicago PMI (9:45am), Consumer Confidence (10am), State STreet Investor Confidence Index (10am)

Premarket Update (Updated 8:40am eastern):

• U.S. Futures are up moderately on news of an EU pact. 
  
• Asian markets traded mixed ranging from -0.2% t  +1.1%
  
• European markets are up across the board about 1%
  

Technical Outlook (S&P):

• Another gap down, another morning low, another rally off those lows and into the close – the all to predictable market pattern of late. 
• S&P managed to close below the 10-day moving average for the first time since 12/19 – albeit barely. 
• Technical damage overall on the last 3 days of selling have been marginal at best due to the bounce each day off of the morning lows. 
• Volume was slightly less than recent days. Overall volume continues to remain light but consistent of late. 
• Yesterday marked the first lower-low in the S&P 30 min chart in well over a month. 
• Some minor support at 1286, but the next notable level of support comes from the up-trend off of the November lows, and currently lies at 1278.
• 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 today or tomorrow.
• S&P coming off of overbought levels, in the very near-term, but still remains overbought on every other time-frame.
• 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. 
• 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:

• Early morning strength is a reversal from what we’ve seen the last few days. The big test will be whether the moderate level of strength is faded or held at the open. 
• Watch the Russell to see if it can make new highs, as it has hardly pulled back at all. 
• Last week should be a warning signal for the bulls to begin booking gains, or at the very least, tightening up the stops to such a degree so that you preserve the large majority of the gains made to-date.
• We have yet to see the “buy-the-dip” mentality cease. Each market open, the bulls buy the open, 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.
• 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. 

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: