Trading Plan for Jan 3, 2011
Current Long Positions (stop-losses in parentheses): OI (29.94), EMN (81.47), APOL (38.22), BTU (61.85), NVDA (14.78), BZ (7.75)
Current Short Positions (stop-losses in parentheses): None
BIAS: 42% Long
Economic Reports Due Out (Times are EST): ISM Manufacturing Index (10am), Construction Spending (10am)
My Observations and What to Expect:
Futures are up strong to start the new year.
Asian and European markets on the whole, were/are up well over 1% in trading.
The market is setting up to gap will above the 6-day consolidation levels, initiating a new leg higher in this market.
First day of the trading month has seen some very strong gains recently, well in excess of 1% (8/2, 9/1 and 12/1 - as noted in Friday's trading plan). Today is setting up to do the same based on pre-market trading.
Volume should get back on track after two weeks of seasonal low volume.
Breakouts after extended periods of consolidation, are some of the best market conditions for trading, particularly in this case, where the consolidation has been very tight and at/near the highs.
Recent consolidation has allowed for the S&P upward trend-line to flatten out some which was healthy for the sustainability of the trend itself (steeper trend-lines can often lead to much quicker and sudden corrections).
With the likely breakout of consolidation that we are likely looking at, 1251 becomes the level, I believe, the bulls must hold to sustain the short-term bullishness of this market.
The relationship between equities, dollar and commodities of late, has not seen the same trading correlation. Definitely something to keep an eye on.
The lows from 12/15 and 12/16 represent, in my opinion, the "higher-lows" in this recent market rally, and a break below them at 1232, would significantly stall this market's upward progression and potentially invite a new trend to the downside.
Depending on market action over the course of the next couple of days, the next "higher-lows" could change to recent market consolidation.
For the bears - Sell the open, and erase early morning weakness. Not only will this lead to a false breakout, but will demoralize the bulls in starting the new year.
For the bulls - At the very least, avoid filling the gap. It will be considered a success, if the bulls can finish above the day's opening price.
Here Are The Actions I Will Be Taking: