Current Long Positions (stop-losses in parentheses): QID (10.30), TWM (11.75)

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

BIAS: 14% Short (counts QID & TWM as a short)

Economic Reports Due Out (Times are EST): Consumer Credit (3pm)

My Observations and What to Expect:

  • Futures are slightly higher heading into the open. 
  • Asian Markets were mixed with Hang Seng down as much as 1.5%. European markets are moderately higher with CAC up as much as 0.8%.
  • Two straight market sessions that have ended with a Hanging Man candle. Often an early indication that the bulls are quietly losing the momentum that had previously propelled it to higher prices. 
  • S&P 10-day moving average continues to provide support in the short term, once tested, triggers the dip buyers to flood the market and erase any market weakness. 
  • Three support levels to watch on the S&P (as of Friday’s Close): 1297 (10-day MA), 1289 (20-day MA) and 1285 (Rising trend line off 9/1 lows). Break of all three of these including at the close, results in a very bearish shift in sentiment. 
  • Volume continues to taper off in dramatic fashion, even with the well-hyped employment report that was released on Friday. 
  • Resistance overhead will lie somewhere between 1313 and 1316 on the S&P. 
  • Despite an obvious overbought market, induced largely from the practices of the Fed, the market can continue proceeding euphorically upwards in an irrational manner, and if so, you have to be careful about trying to form-fit the market to one’s expectations.
  • Analyzing Weekly and Daily index charts, shows that reward is greatly diminished at current price levels, and risk significantly increased.
  • As I laid out on Friday, the market was determined to rally on the employment news regardless of whether it was good or bad.
  • Looking at the weekly chart on the S&P, the last two candles mirror exactly the price action we saw the two weeks prior to the sell-off in April.
  • Price on the S&P is at the upper Bollinger-Band, which will limit its upward mobility at this point. 
  • Nasdaq and Russell confirmed new highs on Friday. 
  • For the bears – Market is very vulnerable at its current state, and the blow-off top that the market put in last week, appears ready to be shorted. 
  • For the bulls – Consolidate and hold the highs. Profit taking seems very likely at this stage.
  • My conclusion: At the risk of being made a fool by this market, I continue to reiterate my analysis that the upside, at least in the short-term is greatly limited by this market. The likelihood we see a sell-off this week is very probable.

Here Are The Actions I Will Be Taking:

  • Stopped out of QID on Friday at $10.44 for a 4.3% loss , but re-entered at the close at $10.39.
  • Covered short position in ZQK at 4.7% gain. 
  • Bought additional DIA Puts – this time expiring in April at $120.
  • Will consider adding additional Short positions on any early morning pop in the market. 
  • Follow me in the SharePlanner Chat-Room today for all my live trades and ideas.