Trading Plan for October 16, 2012

Pre-market update (updated 9am eastern):

• Europe is trading 1.4% higher.
• Asian markets traded 0.8% higher. 
• US futures are moderately higher ahead of the opening bell. 

Economic reports due out (all times are eastern): ICSC-Goldman Store Sales (7:45am), Consumer Price Index (8:30am), Redbook (8:55am), Treasury International Capital (9am), Industrial Production (9:15am), Housing Market Index (10am)

Technical Outlook (SPX):

• Excellent bounce yesterday in the market – the strength of which opens the door to a multi-day bounce. 
• SPX bounced perfectly off of the 50-day moving average and is set to challenge the 10 and 20-day moving averages as well. 
• Any move to the upside should be considered a dead cat bounce. The only way this changes is if we can push and close above 1462. 
• Ahead of the bell, shows the market gaping higher, but the gap-ups have resulted in difficult days for the market.
• We confirmed the double-top pattern on SPX and closed below critical support at 1430 on Friday. 
• At this point, we should expect a near-term bounce, but expect it to be short-lived. 
• Ultimately, we need to start focusing more on short opportunities particular on a dead cat bounce that takes price close to key resistance levels on individual equities, and offering ideal risk/reward setups. 
• 8-day EMA is tracking nicely against the SPX offering a level of resistance over the past three trading sessions. 
• Since 10/5 the SPX on the 30-min chart shows a well-defined downtrend in place. 
• Also worth noting is SPX price on the daily is testing the lower Bollinger Band. With the exception of last summer, this typically offers an ideal bounce point for the market. Last time the lower BB was tested we saw an eight day move that took us from 1396 to 1473.
• We have broken the long-term trend-line off of the 6/4 lows. That is no doubt problematic for bulls. 
• Nowhere in the selling are we really seeing panic. It’s more like a leaky faucet that continues to just drip…drip…drip…
• VIX dropped back below 15. 
• 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:

• Shorted and covered ILMN at $48.07 from $50.50 for a 4.8% gain. 
• Closed GWW at $215.49 from $210 for a 2.6% gain. 
• No new positions added to the portfolio. 
• Remain long LMCA at $107.00, AAPL at $637.69, SHLD at $54.48, HAL at $34.17. 
• Remain short DRC at $52.38 and CPRT at 27.00
• Stop-loss tightened to $58.71 for SHLD.
• Track my portfolio RealTime here.

Charts: