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Trading Plan for May 25, 2011

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May 26, 2011 – Comments (0) | RELATED TICKERS: SPY

Current Long Positions (stop-losses in parentheses): PEP (70.10), PCLN (502.75), SLV (33.36), NFLX (237.25), GLD (144.73), ANV (34.25), FDO (53.28)

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

BIAS: 50% Long

Economic Reports Due Out (Times are EST): MBA Purchase Applications (7am), Durable Goods Orders (8:30am), FHFA House Price Index (10am), EIA Petroleum Status Report (10:30am)

My Observations and What to Expect:

Futures are slightly lower heading into the open. 

Asia was mildly lower with Nikkei leading the way at -0.6%. Europe is currently trading flat. 

While the market opened up with the intentions of rallying yesterday, the upward move was quickly squashed. At the very least, the bears were unable to break the previous day's intraday lows. 

After seeing the recovery off of overnight lows, and then the near doji-candle from the day before, a bounce appears to be imminent. Whether it will be a dead cat bounce or a legitimate move higher is any one's guess. 

To put recent weakness in perspective - if we finish down on this week (which is how it looks right now), it will mark the fourth consecutive week that we have done so, which would only be the third time that has occurred since March '09. Even during the 2007-2009 meltdown, we only had 3 such 4-week periods - and only that went longer.

To put it in perspective - we are very oversold at this point, and taking on a heavy short portfolio or suddenly deciding to short this market in general, carries an elevated risk to it. 

We touched nearly perfectly the descending bottom channel line, that can be seen in the daily and intraday-time frames. Should this hold, it would make sense for us to bounce in the coming days and make a move back up to the 1340's.

Of note - we broke the trend-line the market had been previously trading on which causes us to flatten out the existing trend-line even more.

The most important price level on the S&P now become 1294, which now represents the previous higher-low. Break it, and things will unravel at the seams. Also a break out of or below the descending channel, would go a long way in changing the character of this market.

My conclusion: I believe that commodities will continue to show strength and will help lead the way in a broader market bounce. 

Here Are The Actions I Will Be Taking:

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