Current Long Positions (stop-losses in parentheses): QID (10.44), TWM (11.75) , SHZ (6.19)

Current Short Positions (stop-losses in parentheses): ZQK (4.77)

BIAS: 17% Short (counts QID & TWM as a short)

Economic Reports Due Out (Times are EST): Jobless Claims (8:30am), Productivity and Costs (8:30am), Factory Orders (10am), EIA Natural Gas Report (10:30am)

My Observations and What to Expect:

  • Futures are slightly negative prior to the open. 
  • Asian markets were mixed (with Hang Seng up 1.8%), while European markets are in the red (CAC 40 down 1.2%)
  • S&P and Dow managed to hold critical price levels (1300 and 12000 respectively).
  • S&P formed a bearish harami candle pattern at the highs, which increases the probability of a market reversal in the short term. 
  • Price managed to fall back just within the upper bollinger band on the S&P.
  • Volume has come down drastically over the past three trading sessions.
  • Previously, when we have seen price escape outside the upper bollinger band, it is usually followed by a doji price candle or day of consolidation, then the following day is when we see a sizable sell-off. 
  • 1275 represents the new higher-low in this market and the existing trend-line that has held back to 9/1.
  • Careful with the market at this stage, with the S&P close outside the upper-bollinger band on Tuesday, and the last six times dating back to August 2009, has resulted in strong selling pressures there after, usually within a two-day time frame.
  • Similarities abound when comparing the market action of the last two weeks to what we saw back in April when the market topped. Action going forward has a high probability of being very volatile and choppy.
  • For the bears – Get the S&P back below the 10-day moving average.
  • For the bulls – Consolidate at or near the highs over the next few days – it will be difficult to extend this rally much further in the very near term.
  • My conclusion: Like yesterday, I still firmly believe this market has pushed itself and overextended the indices with the rally we saw on Monday and Tuesday, and that what we are seeing is a top developing in the market, which should lead to some impressive shorting opportunities in the near future. 

Here Are The Actions I Will Be Taking:

  • Added SHZ to the portfolio yesterday at $6.09, and sold half at $6.40 for a 5.1% gain. I am likely to sell the remaining half at some point today. 
  • Added March DIA $119.75 Puts yesterday to the portfolio. 
  • Will look to close ZQK out today on strength.
  • Will continue to wait for a more significant break in this market before adding any additional short positions to the portfolio. 
  • Tightened the stop-loss in SHZ and ZQK.
  • Follow me in the SharePlanner Chat-Room today for all my live trades and ideas.