Trading Plan for Feb 14, 2011
Current Long Positions (stop-losses in parentheses): QID (9.99)
Current Short Positions (stop-losses in parentheses): LSI (6.53), GLD (133.67)
BIAS: 21% Short (counts QID as a short)
Economic Reports Due Out (Times are EST): None
My Observations and What to Expect:
Futures are flat heading into the open.
Asian markets were very strong, seeing gains ranging from 1.1% up to 2.5% in China. European markets are mixed/flat so far.
S&P avoided yet another sell-off on Friday and managed to rally to new recovery highs.
Volume has picked up some over the past two days on increasing gains. A positive for the bulls.
20-day MA now sits above 1300 for the first time in this recover rally.
10-day moving average continues to provide unbelievable support to this market rally, holding yet again on Friday during early morning selling before quickly recovering.
Despite even the best of sell-offs, there is a constant bid beneath this market, that keeps the bears from pushing this market significantly lower. Once the dip buyers are defeated, that is when this market will see the correction that I am anticipating.
Friday's rally gave the impression that the market was rallying on hot air and signified that the bullish trade has become over-crowded.
Three support levels to watch on the S&P (as of Friday's Close): 1313 (10-day MA), 1300 (20-day MA) and 1297 (Rising trend line off 9/1 lows). Break of all three of these including at the close, results in a very bearish shift in sentiment.
For the bears - Just keep the market from closing higher today in its most basic form.
For the bulls - Show some follow through on Friday's impressive gains, to begin the next leg up in this market.
My conclusion: At this pace, the S&P will reach all-time highs somewhere around mid-June. The chances of that being a reality are slim to none. At some point before then, the market has to start slowing down considerably. The market cannot support the growth we have seen since 12/1 or even 9/1, which is why I believe the short-term view of this market sees a lot more risk to the upside than downside.
Here Are The Actions I Will Be Taking: