Trading Plan for October 18, 2012

Pre-market update (updated 9am eastern):

• Europe is trading mixed/flat.
• Asian markets traded 1.3% higher. 
• US futures are slightly lower ahead of the opening bell. 

Economic reports due out (all times are eastern): Jobless Claims (8:30am), Philadelphia Fed Survey (10am), Leading Indicators (10am), EIA Natural Gas Report (10:30am)

Technical Outlook (SPX):

• Yesterday was Day #3 for the market bounce. 
• We’ve seen price move right into resistance of the slightly downward channel. 
• So despite the three-day rally, we have yet to see any technical improvement on the chart. Therefore its best, at this point, to be considered a dead-cat bounce until proven otherwise. 
• No changes to the volume levels in recent weeks. 
• SPX is back into overbought territory short-term. 30-minute chart also looks overextended, and choppy. 
• Multiple ways to look at this market… I’ll detail both perspectives
• Technically, we are in a downtrend. Since September highs, we have 1) formed a slightly lower-high 2) formed a subsequent lower-low 
  • This creates a SLIGHT downtrend, but the channel is barely trending lower. 
• On the other hand, considering the larger uptrend that we were in from the 6/4 lows, one could consider this to be a developing bull-flag before moving higher. 
• I’d recommend not drawing a conclusion on either scenario. 
• Instead I’d wait for it to break out/down of the channel that has formed to determine ultimate market direction. Until then be nimble. 
• SPX bounced perfectly off of the 50-day moving average and is set to challenge the 10 and 20-day moving averages as well. 
• We confirmed the double-top pattern on SPX and closed below critical support at 1430 on Friday. 
• 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. 
• We have broken the long-term trend-line off of the 6/4 lows. That is no doubt problematic for bulls. 
• VIX dropped 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:

• TTI Shorted/covered at $6.14 from $6.06 for a -1.3% loss. 
• Covered DRC at $54.70 from $52.38 for a -4.43% loss. 
• Remain long AAPL at $637.69, MCD at $94.00.
  
• Remain short CPRT at 27.00
• Track my portfolio RealTime here.

Charts: