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Trading Plan for August 17, 2011

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August 17, 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): MBA Purchase Applications (7am), Producer Price Index (8:30am), EIA Petroleum Status Report (10:30am)

My Observations and What to Expect:

Futures slightly higher heading into the open.  

 

Asian markets trade in another mixed/flat session as does Europe.

Yesterday was marked by intraday whip-saw action, which was buoyed by the Sarkozy/Merkel meeting the yielded nothing positive for the markets. 

S&P managed to hold the 10-day moving average near perfectly. I am still looking for a 1-2 day move that pushes the S&P higher, now that we confirmed the move above the 10-day MA yesterday. 

There will likely be some moderate weakness on the underside of the old trend-line that was began off of the July '09 and was broken finally on 8/4/11

Could also find some resistance around 1226 as well which would be the underside of the descending channel the market had been trading in since mid-April and broken on 8/4 as well. 

Volume was very light yesterday, equal to the reading that we got on Monday. 

Bears continue to seem 'unphased' by the recent push higher in equities, as they can be seen on the tape trying to short nearly every rally. I don't believe that we've seen a significant short covering at this point, which leads me to believe there could be another big rally like we saw last week left in this market. 

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.

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:  With yesterday's consolidation near the highs, might be worth adding a few starter positions to the long side, to see if you can benefit from additional strength in the markets. 

Here Are The Actions I'm Taking:

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