Trading Plan for March 19, 2012

Economic Reports Due out (Times are EST): Housing Market Index (10am)

Premarket Update (Updated 8:30am eastern):

• US Futures are slightly negative.
  
• Asian markets saw its trading range from +0.2% down to -1.0%.
  
• European markets are trading 0.4% lower.
  

Technical Outlook (S&P):

• The market indices finished in mixed fashion: the Dow finally broke its seven day winning streak and the S&P extended its weekly streak to 5 straight and 10 out of its last 11. Quite impressive!
• Volume was at its highest level since 12/19 of last year and primarily due to the quadruple witching (opex expiration), which coincidentally was the same reason for 12/19’s volume too.  
• One major concern for equities is the % of stocks that continue to trade below its 40-day moving average and that continues to drop daily. 
• The S&P, even during this rally tends to come back down to the 10-day moving average and trade in line with the MA which at this point is 25 points above it – good reason to believe that it will contract back to that level in the short-term (i.e. 1380-1390)
• Major overbought signals in the short-term. 
• Price-level resistance can be found at 1428. 
• Nearest support level for the S&P lies around 1378 

My Opinions:

• Regardless if you think this market is going to drop or not, it can remain irrational longer than you can remain solvent
• This is one of the strangest markets that I’ve seen, because traditional indicators of market reversals or signs showing it being overheated are basically worthless right now. Euro dropping has been irrelevant, market negatives have been inconsequential. Much of the rally is in conjunction with favorable Fed policy that continues to allow for this eye-shattering rally. Which hasn’t that really been the case since March ’09?
• A lot of bulls getting pulled off of the sidelines, and a lot of people are becoming over confident (though none of them ever realize this) which is usually a time you want to be nervous about being too aggressive to the long-side. Keep trading with the trend, just be cautious. 
• Looking back at recent history, when we get these major breakout rallies to new highs, we’ve seen at least 1-2 weeks consolidation – which wouldn’t surprise me considering how far removed we are from any significant support levels (wouldn’t surprise me either if we ripped to infinity and beyond at this point). 
• While I believe that this market is rising on pure government fluff and is ultimately unsustainable, trying to get in front of it to the short-side at this point is ill-advised. 
• The market tends to rally on strength in the Euro, but when the Euro is selling off, the market has ignored the action. 

Chart: