Trading Plan for October 17, 2011

Current Bias: 100% Cash

Economic Reports Due Out (Times are EST): Empire State Manufacturing Survey (8:30am), Industrial Production (9:15am)

Today’s Breakdown:

• Futures are slightly down heading into the open.
• Asian markets were up about 1.8% today, and Europe is trading flat/mixed. 
• On Friday, the S&P managed to break through and close above the downward trend-line from the past two months. Very bullish
• 10-day moving average is getting to cross above the 50-day moving average for the first time since 8/2. Technically it doesn’t mean much, but does show that market conditions are becoming more favorable for the bulls. 
• Friday’s closing was the highest closing since 8/3, but needs to break the intraday-highs of 8/31 where we reached 1230 on the S&P. 
• The market is severely overbought at the moment, and needs to cool off some, before we can really expect another major move higher as the market has already managed to trade 14% higher within nine trading sessions. 
• Another major resistance barrier for the market will be the 1270 level where you have the 200-day moving average as well as the neckline resistance from the head and shoulders pattern that was formed earlier in the year. 
• A very disturbing phenomenon in this nine-day market rally has been the continual decreasing volume levels on the S&P, which is typical in bear-market rallies. 
• 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: I wouldn’t be surprised if we’ve seen the year’s lows at this point. Remain cautious about chasing this market, even if that means you have to stay on the sideline for a while. This market can easily reverse course here. 

Be sure to follow me in the SharePlanner Chat-Room today for all my live trades and ideas (as well as everyone else’s).