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Trading Plan for Feb 22, 2011

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February 22, 2011 – Comments (0) | RELATED TICKERS: SPY

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

Current Short Positions (stop-losses in parentheses)None

BIAS: 100% Cash

Economic Reports Due Out (Times are EST): S&P Case Shiller HPI (9am), Consumer Confidence (10am), State Street Investor Confidence Index (10am)

My Observations and What to Expect:

Futures are down dramatically ahead of the open, looking at losses well in excess of 1%. 

Asian markets are down ranging from -1.8% to as much as -2.6%. European markets are down much less with losses ranging from -0.3% to -1.5%. 

While the equity markets were closed yesterday, turmoil in the Middle East, in particular Libya, cause the markets to drop more than 1%, which is carrying over into equity markets when they open this morning. 

S&P is poised to open up right around the 10-day moving average. Watch for whether the dip-buyers jump in at this level. 

The possibility of a test of the 20-day moving average is a strong possibility but would take an extreme move down for it to test that support level today. 

Market action we are seeing this morning, and the reason for it, is nearly mirrior identical to what we saw on 1/28 in response to the turmoil in Egypt. 

What the market does in terms of selling off today, isn't nearly as important for the bears as what they can do tomorrow in terms of a follow through. 

The Short-Term Trend-line off of the 2/3 lows currently sits at 1336, and will be broken at the open of today's market session. 

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.

Three support levels to watch on the S&P (as of Friday's Close): 1329 (10-day MA), 1313 (20-day MA) and 1310 (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 - Keep the S&P below the 10-day moving average. Last thing you want to have happen is for the dip buying to begin gaining momentum. 

For the bulls - Large gap to fill on the charts, but look to previous support levels to usher in the buying (10, 20 day moving averages, and the present trend-line.)

My conclusion: Nice sell-off to begin the week, large gap downs always concern me, because they tend to see much faster rebounds. I will have a difficult time trusting this move down until I can see a day of follow through. 

Here Are The Actions I Will Be Taking:

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