Trading Plan for March 5, 2012

Economic Reports Due out (Times are EST): Factory Orders (10am), ISM Non-Manufacturing Index (10am)

Premarket Update (Updated 6:30am eastern):

• US Futures are down moderately.
  
• Asian markets were down -0.9% on average. 
  
• European markets are trading -0.6% lower at the moment.
  

Technical Outlook (S&P):

• Despite heavy selling in the Russell on Friday, and clear signs that it is trying to roll over, the S&P managed to keep losses to a minimal, and also closed above the 10-day moving average. 
• The possibility exists, as we head into the open that we gap below the 10-day MA. 
• Because of the slow crawl higher over the last two weeks, there are a number of converging support levels. The 10-day moving average is at 1366. The 20-day MA is at 1359, and also of importance is a trend-line off of the December lows that also sits at 1359. Break all three of these important support levels, and you have a major shift in market sentiment going forward. 
• Market’s uptrend since November forms a bearish wedge. 
• Volume was much lighter than what we’ve seen over the last three days. 
• Weakness in the Euro last week, and if it continues this week, look for it, as well as rising oil prices, to impact the market. 
• Price action on the 30-min chart is looking choppy of late. 
• All existing uptrends remain firmly intact. 
• Key for the bulls, at a minimum is to consolidate above 1370 which represents strong price level support and where we made new recovery highs. 
• Divergence in VIX as it is showing relative strength against the S&P making new highs of late (inversely correlated)
• 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. 

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 fared much better. It is an incredible phenomenon.
• It will be difficult for the market to show much of any weakness until the rug gets pulled out from underneath Apple (AAPL) due to its heavy weight influence on the S&P and in particular the Nasdaq. 
• 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 the gap-down, which will no doubt will see an attempt to buy the gap very soon after the opening bell. 
• 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 roadmap 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: