Trading Plan for October 13, 2011

Current Bias: 15% Short

Economic Reports Due Out (Times are EST): International Trade (8:30am), Jobless Claims (8:30am), Bloomberg Consumer Comfort Index (9:45am), EIA Natural Gas Report (10:30am), EIA Petroleum Status Report (11am), Treasury Budget (2pm)

Today’s Breakdown: 

• Futures are slightly down heading into the open. 
• Asia traded with gains ranging from 0.7% up to 2.3%. Europe is trading down on average about -1.2%.
• S&P came very close to breaking out of the downward trend-line it had been trading in for the last 2 months. For most of the day it was trading outside of it. But in the last 15 minutes of trading it gave up a lot of its gains from the day. 
• That is why, when determining breaks in support and resistance, you have to base your decision based on closing prices in the period that you are watching the chart in. 
• S&P, when looking at it on the SPY chart, has the makings for an exhaustion gap. Major gap up after overextended rally, with a gravestone doji. 
• If we can close above the aforementioned resistance level, there is a good chance, that the year’s bottom is in place, and perhaps even see a “Santa”-type of rally.
• Careful with chasing this market at these levels – we are extremely overbought in the short-term heading into significant resistance.
• The past few weeks reminds me of late 2008, when the market would experience a series of massive sell-offs followed by a significant rally, only to reverse course yet again.
• Make sure that whatever you do, that you protect the gains that you have, and be ready for sudden and quick reversals in this market.
• My Conclusion: Yesterday’s closing action signaled to me that the market was getting a bit queasy at its current levels, and will due for a pullback either today or Friday. 

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