Trading Plan for October 3, 2011
BIAS: 100% Cash
Economic Reports Due Out (Times are EST): ISM Manufacturing Index (10am), Construction Spending (10am)
My Observations and What to Expect:
Futures are moderately lower heading into the open.
Asia saw losses range from -1.8 to -4.4%. Europe is seeing losses of roughly -2.4% today.
S&P has tested the underside of the bear-flag pattern (resistance) nicely, and is now resuming with is downward sell off.
Futures trading overnight has improved off of the lows, erasing about 50% of the possible losses.
While I am a believer that we're going to see further downside in this market, I am also greatly concerned by the level of bearishness that has currently flooded the markets.
I don't believe the S&P can 'stair-step' its way down lower, because I don't think it can do so without subjecting itself to a major bounce in the process.
Legit moves lower, will have to come in big chunks, similar to and more than what we saw on Friday, particularly if we want to see a move below 1100.
The market continues to act as a dangerous place for the passive trader. Intraday day whip-saws creates gains and erases them very quickly. Take the gains when you can.
Four days in a row, the S&P has tested the 10 and 20-day moving averages and failed each time. The two converged moving averages, are acting as heaving resistance.
For the bears, the goal should be to push the market and close below 1120 today and eventually 1101 at some point this week.
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.
The bears have yet to successfully trade AND close below 1120 on the S&P. There is continued buying support at these levels. Should this level eventually break, watch 1114, and then 1101 for additional support.
My Conclusion: Bears have to take advantage of weakness in the market RIGHT NOW. They can't afford to trade sideways with the bulls against the ropes.
Here Are The Actions I'm Taking: