Trading Plan for March 1, 2012

Economic Reports Due out (Times are EST): Jobless Claims (8:30am), Personal Income and Outlays (8:30am), Bloomberg Consumer Comfort Index (9:45am), ISM Manufacturing Index (10am), Construction Spending (10am), Bernanke speaks (10am), EIA Natural Gas Report (10:30am), 

Premarket Update (Updated 8:30am eastern):

• US Futures are slightly up after recovering from overnight losses since the European open.
  
• Asian markets saw losses range from -0.2% down to -1.4%. 
  
• European markets are trading about +0.8% higher. 
  

Technical Outlook (S&P):

• The first day of the trading month, each of the last two months have seen gains of more than 1%. 
• Yesterday’s “sell-off” did little to impact the markets. S&P still trading comfortably above its 10-day moving average and all existing upward trend-lines are still intact. 
• We saw the largest volume level this year, by a large margin, yesterday. 
• Price action yesterday gave us a bearish engulfing pattern on SPY. Bearish candle patterns have done little in the way of providing realistic downside forecasts so far this year. 
• 10-day moving average is in play today at 1361. The 20-day MA could be as well on any descent selling at 1355. 
• Bulls will want to get the market back over 1370 again and close above it. 
• Divergence in VIX as it is showing relative strength against the S&P making new highs of late (inversely correlated)
• 30-minute chart on the S&P still looks healthy with uptrend still in place. 
• We’ve yet to see a sell-off this year that exceeded 1% to the downside. 
• 1370, when looked through the prism of a 15-year chart, represents a very strong price level where markets have historically reversed at. 
• Price level support lies at 1326 and then again at 1300. A break of the latter in coming weeks would drastically change market behavior/outlook. 

My Opinions:

• Market continues to show the desire to self-correct, but the dip-buying mentality in this market has prevented any such action from occurring. 
• For more than 10 years, the first two weeks of March have been horrible for the bulls – seeing strong sell-offs (with the exception being 2010 and the second week of 2009). Second half of the month has faired much better. It is an incredible phenomenon.
• Bears tend to perform the best when they don’t have to hold a gap down, and instead work with a flat or slightly positive open. Today you have that. 
• Never find yourself comfortable with profits on the short side, particularly when the market is trading in your favor, because the market continues to buy the dip at every junction. It’s the surest bet in the market right now. 
• Market appears sluggish to me. I don’t consider it consolidation, because it is still marching higher, but the intraday action in doing so, appears to be listless and with less conviction than before. 
• I’m using January-February of last year as my analogue for trading this market – price action is nearly identical, as is the time frames too. With that being said, it is likely we see a pullback of worth here in the very near future. 

Chart: