Trading Plan for March 23, 2012

Economic Reports Due out (Times are EST): New Home Sales (10am)

Premarket Update (Updated 8:30am eastern):

• US Futures are mixed/flat ahead of the open. 
  
• Asian markets traded down -1.1%
  
• European markets are trading -0.5% lower
  

Technical Outlook (S&P):

• The S&P saw price fall and close below the 10-day moving average. However in the past, it has been a break of that moving average that has led to a sudden surge of buying power across the board in equities. 
• The 30-minute chart shows that the we have a double bottom in place. It is key, in early morning action for the bears to push the market below yesterday’s lows. 
• Volume slightly higher than what we’ve seen over the last three days, but of little consequence really. 
• The main question for today, is whether the 20-day moving average breaks and in the future consolidate below the MA without a bounce that takes us back to new highs. 
• Bearish wedge pattern forming in the intermediate term has yet to confirm, but looks ominous. 
• These days of weakness, in recent past, has been bought up very quickly within 2-3 days and led to significant rallies.  
• 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:

• If I have to bet, I expect the bulls to buy this dip anytime now. 
• 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. 

Chart: