Trading Plan for October 18, 2011

Current Bias: 100% Cash

Economic Reports Due Out (Times are EST): ICSC-Goldman Store Sales (7:45am), Producer Price Index (8:30am), Redbook (8:55am), Treasury International Capital (9am), Housing Market Index (10am)

Today’s Breakdown:

• Futures are down moderately heading into the open. 
• Asian markets were down between -1.4% and -4.2%. Europe is currently trading on average about -1.3% lower. 
• Bearish engulfing candle pattern on the daily chart from yesterday. 
• Sell-off put the S&P back within the downward channel from the past 2 months. 
• Yesterday marks an inflection point for the market – look for whether it can stop the bleeding here and consolidate, or whether the market continues to the march downward. 
• 10-day moving average crossed 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.
• Yesterday’s sell-off helped to work off the overbought conditions were were seeing. 
• 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: Don’t want to say we are heading straight down from here, but with the lack of solid earnings reports, navigating higher is going to become very difficult. 

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