Trading Plan for July 16, 2012

Pre-market update (updated 8:30am eastern):

• European markets are trading in a wide range from -0.3% up to +0.7%. 
• Asian markets traded in a wide range from -0.4% up to 1.8%.
• US Markets are moderately higher ahead of the open.  

Economic reports due out (all times are eastern): ICSC-Goldman Store Sales (7:45am), Consumer Price Index (8:30am), Redbook (8:55am), Treasury International Capital (9am), Industrial Production (9:15am), Housing Market Index (10am), Ben Bernanke Speaks (10am), 

Technical Outlook (SPX):

• Dip buyers came in yesterday off of the days lows, and managed to rally the market almost back to break-even. It’s safe to say that yesterday’s action was consolidation from Friday’s huge run-up. 
• There’s actually the possibility that we are forming a head and shoulders pattern on the daily chart when looking at the action from the past month. 
• The main target for the bulls going forward is breaking through 1374 (and most importantly close above it) and establishing a “higher-high” in the market. 
• Volume has tapered off the last two trading sessions. 
• Though we are no longer overbought on the daily chart, the weekly chart and SPRI shows a much more overbought market.
• After Thursday’s elongated lower shadow, I’ve decided to adjust the upward trend-line off of the 6/4 lows connecting it with that day’s lows. 
  • As a result, there is a well-defined channel that the market is trading in, and eliminates the bearish channel we had seen before. 
  • A break below 1331, would break the channel. 
• Huge doji candle on the weekly SPX – some might say its a shooting-star, but I’d disagree, as it occurred inside of last week’s candle body. 
  • Nonetheless, it does represent some indecision by the markets, as well as underlying weakness, evident by the long lower shadow off of the body of the candle. 
• During the six-straight days of sell-off that ended last week, the entire time, the bulls managed to keep the VIX under 20. Currently it sits at 17. 
• 30-minute chart shows a nice bounce and breakout of the temporary downward channel. 
• Breaking through the 1390’s will be difficult as there are plenty of separate resistance levels in that area. 
• Below 1306-1308 price level, will nullify the current rally off of the 6/4 lows – would represent a ‘lower-low’ in the market. 

My Opinions & Trades:

• Sold HD at $51.50 from $51.50 for a break even trade. 
• Sold 1/2 of CMG at $395 from $378.44 for a 4.4% gain.
• Bought KKD at $6.61.
• Bought MLNX at $65.86.
• Will likely take any gains today in MLNX that I can with earnings coming up on Wednesday – will not hold through that session. 
• I’m in a position now, where I’m not really interested in expanding the # of holdings, instead I’ll look for opportunities to swap out non-performing trades with better trade opportunities. 
• Still long CMG at 378.44 (1/2), TPC at $12.43, NFLX at $82.76, AGU at $89.66, and CIE at $24.22.

Charts: