Trading Plan for March 6, 2012

Economic Reports Due out (Times are EST): ICSC-Goldman Store Sales (7:45am), Redbook (8:55am), Treasury STRIPS (3pm)

Premarket Update (Updated 6:30am eastern):

• US Futures are down strong, nearly -1%
  
• Asian markets saw losses range from -0.6% down to -2.1%.
  
• European markets are trading -1.5% lower.
  

Technical Outlook (S&P):

• The S&P is poised for its first significant day of downside follow-through this year. 
• If current weakness holds, the S&P will gap below its 20-day moving average as well as its longer-term trend-line that started back on 11/28. 
• After you break the aforementioned support levels, there are no other significant support levels nearby. Watch the support level off of the October lows which currently sits at 1327 and converges with the down trend off of the 2007 highs. 
• The big test for bears is whether they can stave off the inevitable buy-the-dip crowd that will at some point test the strength of this sell-off. 
• S&P also managed to close below the 10-day moving average for only the second time this year. Last time this event was bought up immediately the next day. 
• 30-minute chart on the S&P is very close to making a lower-low on the chart. 
• S&P’s uptrend since November forms a bearish wedge. 
• Price action on the 30-min chart is looking choppy of late. 
• Key for the bulls is to get price action back above 1370. When looked through the prism of a 15-year chart, represents a very strong price level where markets have historically reversed at.
• We’ve yet to see a sell-off this year that exceeded 1% to the downside. 

My Opinions:

• Though I believe this market is prime for a pullback, I am nonetheless very skeptical of whether it can actually hold off the dip-buyers and thus keep the bulls from pushing price back into the gap and possibly filling it. 
• 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. We started to see somewhat of a break in AAPL yesterday. 
• 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. 
• 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: