Trading Plan for October 10, 2011
Current Bias: 100% Cash
Economic Reports Due Out (Times are EST): NFIB Small Business Optimism Index (7:30am)
My Observations and What to Expect:
Futures are up in excess of 1% heading into the market open.
Asia was slightly higher today at about an average of 0.5%, and Europe is currently trading with 0.4% in gains.
Last week's rally has placed the market in short-term overbought territory. Over the past 2.5 months, this has been a great opportunity to get very, very conservative, as the market tended to soon thereafter reverse hard to the downside.
Friday saw the S&P fighting to remain in positive territory, only to drop 15 points from the market highs into the close.
The S&P is poised to open at or near the descending 50-day moving average. Should it break it, it would mark the first time it has traded above the MA since 7/26/11.The one and only attempt it previously had to break through the MA ended up in failure on 9/20 and a quick intraday reversal in the process.
20-day moving average has seen price on the S&P see-saw above and below it in recent days, decreasing its value as an indicator of support/resistance.
Volume on Friday is where it has been for much of the past two months.
Short interest in stocks is piling up to levels not seen since 2006. On the surface this sounds bearish, but in the past, when I read these kinds of headlines, they tend to ultimately mark significant bottoms in the market. It also indicates that most of the people who are going to sell this market are already doing so, and as a result there could be a lack of capital to further allocate to the downside. These are the times to where significant short-squeezes can take place too.
The past couple of weeks reminds me of late 2008, when the market would experience a series of massive sell-offs followed by a significant rally or two.
Make sure that whatever you do, that you protect the gains that you have, and be ready for sudden and quick reversals in this market.
My Conclusion: My main focus today is whether we fade or not at the 50-day MA. Last time we tested this important level we immediately sold off (9/20). We are prime to test that 50-day MA right at the open.
Here Are The Actions I'm Taking: