Trading Plan for March 22, 2012

Economic Reports Due out (Times are EST): Jobless Claims (8:30am), Bloomberg Consumer Comfort Index (9:45am), FHFA House Price Index (10am), Leading Indicators (10am), EIA Natural Gas Report (10:30am)

Premarket Update (Updated 8:30am eastern):

• US Futures are down moderately ahead of the open.
  
• Asian markets traded 0.3% higher. 
  
• European markets are trading -1.3% lower
  

Technical Outlook (S&P):

• We are setting up for a test of the 10-day moving average. I always think that this is significant from a short-term perspective, but in recent past, there has been little additional downside that occurs. Currently, the MA is around 1396 at today’s open. 
• The 20-day moving average is around 1380, but I highly doubt we’ll see any challenge there. 
• These days of weakness, in recent past, has been bought up very quickly within 2-3 days and led to significant rallies.  
• Volume continues to remain slightly below recent averages – the ongoing theme in 2012. 
• The S&P is coming off of short-term overbought levels. 
• 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. 
• Price-level resistance can be found at 1428. 

My Opinions:

• As I’ve been for the good part of the last three months, I’m very skeptical of the gaps down in this market. The bulls tend to use them to buy the dip in the form of inverse head & shoulders and then rallies hard into the afternoon.
• Watch the first hour of trading and price action – it is usually very telling whether this is going to be another dip-buy opportunity. 
• If you are short going into today, I would be somewhat trigger-happy about taking profits. 
• 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). 

Chart: