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Trading Plan for August 16, 2011

Recs

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August 16, 2011 – Comments (0) | RELATED TICKERS: SPY

 

Current Long Positions (stop-losses in parentheses): QCOM Oct 60 Calls, AAPL Sept 420 Calls, Sept 124

Current Short Positions (stop-losses in parentheses): None

BIAS: 8% Long

Economic Reports Due Out (Times are EST): ICSC-Goldman Store Sales (7:45am), Housing Starts (8:30am), Import and Export Prices (8:30am), Redbook (8:55am), Industrial Production (9:15am), E-Commerce Retail Sales (10am)

 

 

My Observations and What to Expect:

Futures taking a dive on weak European GDP numbers this morning. 

 

Asian markets traded in a mixed/flat manner, and Europe is trading between -1.4% and -2.6% down. 

Despite early morning weakness, a lot can change should the meeting between Merkel and Sarkozy bring forth a major announcement at 12:30pm ET, or it could get a lot worse on disappointing news.  

Some technical improvements with yesterday's price action, as the bulls managed to push price over the mental hurdle of 1200 on the S&P. 

S&P also managed to break through the 10-day moving average, which typically leads to additional strength for at least 1-2 days .

With all that said, today's weakness, is potentially setting up for a bearish-kicker price pattern, should we open below yesterday's lows, and extend the move downward on SPY. 

Volume yesterday declined for the 5th straight day, with yesterday's reading being very low and below average. 

The 50-day and 200-day moving average downside cross over, is often a bullish signal despite popular belief of the exact opposite. Here is my backtest of this phenomenon

I don't view today's price action (so far) necessarily the end of the move upwards. We'll have to wait out today's price action and see how the day ends first before making any conclusions.

A break below 1120 on the S&P would indicate a new leg down in this nasty downturn that we've experienced.

If this is only a dead cat bounce, we'll likely  see this market only move somewhere between 1220 and 1260 before facing renewed selling pressures.

Max pain scenario for the bulls and bears would be a run to new recovery highs (though we are no where near this) - bears would lose their profits, and many bulls would be stopped out and miss out on the rally due to the huge sell-off that we've had.

My Conclusion: Be prepared for a wild day with a lot of bears scurrying to come back into the market in hopes of pushing this market much lower. Be careful with adding new positions today. 

Here Are The Actions I'm Taking:

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