Trading Plan for October 19, 2011

Current Bias: 100% Cash

Economic Reports Due Out (Times are EST): MBA Purchase Applications (7am), Consumer Price Index (8:30am), Housing Starts (8:30am), EIA Petroleum Status Report (10:30am), Beige Book (2pm)

Today’s Breakdown:

• Futures are flat heading into the open. 
• Asian markets were mainly flat, but the Hang Seng did finish 1.3% higher. Europe traded about 1% higher. 
• S&P perfectly tested the 10-day moving average yesterday during the sell-off but immediately at the open, bounced off of it 1and finished 2% higher on the day.
• Yesterday’s price action put in place a bullish engulfing candle pattern, despite the powerful bearish kicker pattern from the day before. The candle patterns haven’t been overly reliable over the last 2 months. 
• S&P still having difficulty with closing above 1230, which is the intra-day highs from 8/31. 
• Volume saw a nice pickup yesterday, as it got back to average levels. 
• S&P finds price back outside of the downward channel that it had been stuck in for the past 2 months. 
• 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.
• 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.
• 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 think the market is going to struggle with putting together a significant rally that propels us past the 1230 level. Instead, the more likely scenario would be for us to experience some ‘choppiness’ in the coming days or even a move lower to work off the overbought conditions. 

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