Trading Plan for October 18, 2012
Pre-market update (updated 9am eastern):
Europe is trading mixed/flat.
Asian markets traded 1.3% higher.
US futures are slightly lower ahead of the opening bell.
Economic reports due out (all times are eastern): Jobless Claims (8:30am), Philadelphia Fed Survey (10am), Leading Indicators (10am), EIA Natural Gas Report (10:30am)
Technical Outlook (SPX):
Yesterday was Day #3 for the market bounce.
We've seen price move right into resistance of the slightly downward channel.
So despite the three-day rally, we have yet to see any technical improvement on the chart. Therefore its best, at this point, to be considered a dead-cat bounce until proven otherwise.
No changes to the volume levels in recent weeks.
SPX is back into overbought territory short-term. 30-minute chart also looks overextended, and choppy.
Multiple ways to look at this market... I'll detail both perspectives
Technically, we are in a downtrend. Since September highs, we have 1) formed a slightly lower-high 2) formed a subsequent lower-low
This creates a SLIGHT downtrend, but the channel is barely trending lower.
On the other hand, considering the larger uptrend that we were in from the 6/4 lows, one could consider this to be a developing bull-flag before moving higher.
I'd recommend not drawing a conclusion on either scenario.
Instead I'd wait for it to break out/down of the channel that has formed to determine ultimate market direction. Until then be nimble.
SPX bounced perfectly off of the 50-day moving average and is set to challenge the 10 and 20-day moving averages as well.
We confirmed the double-top pattern on SPX and closed below critical support at 1430 on Friday.
Ultimately, we need to start focusing more on short opportunities particular on a dead cat bounce that takes price close to key resistance levels on individual equities, and offering ideal risk/reward setups.
We have broken the long-term trend-line off of the 6/4 lows. That is no doubt problematic for bulls.
VIX dropped back below 16.
Fed's QE3 launch is going to add a lot of buying power to this market and drive more people out of interest-bearing assets and into equities in search of some kind of return.
One area of concern is the 3 large gaps off of the 6/4 lows that remain unfilled, including 6/6, 7/26, 8/3
My Opinions & Trades: