Trading Plan for October 3, 2011

BIAS: 100% Cash

Economic Reports Due Out (Times are EST): ISM Manufacturing Index (10am), Construction Spending (10am)

My Observations and What to Expect:

• Futures are moderately lower heading into the open. 
• Asia saw losses range from -1.8 to -4.4%. Europe is seeing losses of roughly -2.4% today.
• S&P has tested the underside of the bear-flag pattern (resistance) nicely, and is now resuming with is downward sell off. 
• Futures trading overnight has improved off of the lows, erasing about 50% of the possible losses. 
• While I am a believer that we’re going to see further downside in this market, I am also greatly concerned by the level of bearishness that has currently flooded the markets. 
• I don’t believe the S&P can ‘stair-step’ its way down lower, because I don’t think it can do so without subjecting itself to a major bounce in the process. 
• Legit moves lower, will have to come in big chunks, similar to and more than what we saw on Friday, particularly if we want to see a move below 1100. 
• The market continues to act as a dangerous place for the passive trader. Intraday day whip-saws creates gains and erases them very quickly. Take the gains when you can.
• Four days in a row, the S&P has tested the 10 and 20-day moving averages and failed each time. The two converged moving averages, are acting as heaving resistance.
• For the bears, the goal should be to push the market and close below 1120 today and eventually 1101 at some point this week.
• 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.
• The bears have yet to successfully trade AND close below 1120 on the S&P. There is continued buying support at these levels. Should this level eventually break, watch 1114, and then 1101 for additional support.
• My Conclusion: Bears have to take advantage of weakness in the market RIGHT NOW. They can’t afford to trade sideways with the bulls against the ropes. 

Here Are The Actions I’m Taking:

• Traded Direxion Small Cap Bear 3x (TZA) a few times on Friday for a small gain. Wasn’t able to trade much due to the TDAmeritrade outage. 
• Will watch market action for the first 30min to 1 hour of trading before jumping into anything else.
• Friday’s have been difficult for trading lately, not a lot of intraday price movements.
• Follow me in the SharePlanner Chat-Room today for all my live trades and ideas (as well as everyone else’s).