Trading Plan for October 8, 2012

Pre-market update (updated 4:30am eastern):

• Europe is trading 1.0% lower.
• Asian markets traded in mixed fashion, ranging from -0.9% up to +0.4%. 
• US futures are trading moderately lower ahead of the bell.

Economic reports due out (all times are eastern): None

Technical Outlook (SPX):

• Gap down markets: highly luring for the bears, but often a trap. Simply gap downs more times than not push lower for the first hour of trading and then miraculously recover and sometimes finish green on the day. 
• Huge reversal on Friday’s price action. 
• If we indeed see a large pullback, 1430 would mark critical support as it represents the uptrend that we’ve been on since the 6/4 lows. 
• While the 20-day moving average has been violated on a number of occasions, price action doesn’t tend to drop that far below it before popping back higher again. 
• Volume continues to remain on average. 
• Most discouraging aspect about this market is the fact that it pushed above resistance at 1466 and then came back underneath it before the market’s close. 
• Another push above 1465, and ideally above 1474, would be bullish, and possibly lead to some squeezing of the bears. 
• This would also create a ‘higher-high’ for the market which would be extremely important and pave the way for a test of 1500. 
• Quickly approaching overbought conditions in the short-term, but not quite there yet. 
• Failure to make a new higher in the near-term, would be indicative of a topping pattern in the broader market. 
• We have a 10-20-day moving average crossover to the downside. Last time we saw this was in early September, and it marked a short-term bottom and subsequently bounced and sent the market nearly 80 points higher. 
• Taking a look at the weekly chart of SPX, the conditions look very healthy with no signs of a near-term breakdown. 
• For the bulls to build confidence among investors, there needs to be less of the intraday sell-offs. And the bears, if they really want this market to push lower, they need to take advantage of the intraday weakness it continues to get handed. 
• VIX is trading below 15.
• 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
• If another sell-off were to ensue, watch for a break and close below 1396 for a new lower-low in the market.  

My Opinions & Trades:

• Day-traded JRCC from $2.98 to $2.99 for a 0.3% gain.
• Stopped out of NTE at $10.72 from 11.38 for a -5.8% loss. 
• Shorted DRC at $52.38
• Remain long $WYNN at $115.42, TTM at $25.50, VZ at $45.68, SHLD at $54.48. 
• Stop-loss tightened to $25.90 for TTM.
• Stop-loss tightened to $45.80 for VZ.
• Track my portfolio RealTime here.

Charts: