Trading Plan for October 12, 2012

Pre-market update (updated 9am eastern):

• Europe is trading mixed/flat.
• Asian markets traded mixed/flat.
• US futures are slightly higher ahead of the opening bell. 

Economic reports due out (all times are eastern): Producer Price Index (8:30am), Consumer Sentiment (9:55am), Treasury Budget (2pm)

Technical Outlook (SPX):

• Another day where we moved higher early on but then pulled back thereafter and wiped out the day’s gains. 
• Short-term, we are extremely oversold setting up conditions that are ripe for a bounce. 
• We have actually broken the long-term trend-line off of the 6/4 lows. That is no doubt problematic for bulls. 
• Despite that, I still want to see whether we break and close below 1430. 
• Double-top in the SPX is nearly confirmed. 
• No where in the selling are we really seeing panic. It’s more like a leaky faucet that continues to just drip…drip…drip…
• SPX closed right on the lower bollinger band. Last time the lower BB was tested we saw an eight day move that took us from 1396 to 1473. 
• Over the past year, a re-test of the lower bollinger band has been a great opportunity to get long at. Beyond a year, you have last summer’s sell-off that paid no attention to the breach price made on the lower BB. 
• What is astounding is that over the past five days, volume has grown increasingly weak. Like what we saw this summer. 
• 50-day moving average is in play at 1427. 
• On the SPY, you basically have a bearish island reversal from 10/4-8 with the gaps on day 2 and day 3 in opposite directions and was confirmed by yesterday’s follow-through. 
• After Friday’s breakout failure and back below key resistance, it is important to recognize that the market is in a broader market consolidation range. Break of 1430 changes that though. 
• VIX is now back below 16.
• Fed’s QE3 launch is going to add a lot of buying power to this market and drive more people out of interest-bearing assets and into equities in search of some kind of return. 
• One area of concern is the 3 large gaps off of the 6/4 lows that remain unfilled, including 6/6, 7/26, 8/3

My Opinions & Trades:

• Closed VZ today at $45.23 from $45.68 for a -1.0% loss.
• Bought HAL today at $34.17.
• Remain long LMCA at $107.00, GWW at $210.00, AET at $42.12, AAPL at $637.69, SHLD at $54.48. 
• Remain short DRC at $52.38 and CPRT at 27.00
• Stop-loss tightened to $58.51 for SHLD.
• Stop-loss tightened to $41.80 for AET.
• Stop-loss tightened to $208.50 for GWW.
• Track my portfolio RealTime here.

Charts: