Trading Plan for May 7, 2012

Economic Reports Due out (Times are EST): Consumer Credit (3pm)

Premarket Update (Updated 8:00am eastern):

• US futures are slightly down ahead of the open and has recovered significantly off of the overnight lows. 
  
• Asian markets are taking a heavy hit, down on average 2.7%. 
  
• European markets are trading in a wide range – down as low as -1.9% and as high as +0.1%. 
  

Technical Outlook (S&P):

• The S&P saw a significant sell-off yesterday, for the third straight day on Friday. 
• Significant support in the short-term is being tested at 1368
• We have seen a substantial amount of weakness in the futures session that began on Sunday night (as much as 17 points down on the S&P at one point), but has managed to erase most of the weakness.
• S&P is back to short-term oversold territory today. We tend to get bounces in the market rather quickly in this area. 
• Triangle pattern has formed on the S&P with a series of higher-lows a and lower-highs (see below chart). 
• The S&P experienced an increased amount of selling Friday, and is back inside of the 1392/1357 price range, which muddles the market outlooks some. Possibility of the market breaking through the lower channel today. 
• There is a short-term slight uptrend in place off of the 3/6 lows with support today at 1368. 
• The S&P is now trading below the 10-day, 20-day and 50-day moving averages.
• Head and shoulders pattern we outlined the past few sessions on the 30-minute chart hit its target prices and worked out perfectly. 
• The market’s whip-saw action of late has created a convergence of moving averages (10, 20 & 50 DMA’s). 
• The previous trend-line off of the October lows has become resistance for price action on the underside. 
• On the weekly chart, we confirmed the bearish wedge pattern that we had been following for weeks. Very bearish development for the market. 

My Opinions & Trades:

• While I have abandoned any bullish expectations for this market, the recent move to the downside happened so suddenly and swiftly, that the possibilities of getting short this market in a heavy way is dangerous as it is very possible the shorts may get squeezed here soon. 
• Covered AXS at $34.40 from 34.16 for a -0.7% loss – just never broke down for us. 
• Covered KCG at $12.94 from $13.3 for a 3.4% gain. 
• Sold RHT at $59.44 from $61.17 for a -2.8% loss. 
• Sold JPM $42.24 from $44.08 for a -4.1% loss. 
• Still shorted VAR at $64.69
• Remain long HBAN at $6.66 

Chart: