Current Long Positions (stop-losses in parentheses): QID (9.99), TWM (11.39)

Current Short Positions (stop-losses in parentheses): LSI (6.53), GLD $133.67

BIAS: 28% Short (counts QID & TWM as a short)

Economic Reports Due Out (Times are EST): ICSC-Goldman Store Sales (7:45am), Redbook (8:55am)

My Observations and What to Expect:

  • Futures are slightly red heading into the open. 
  • Asian and European markets were mixed to flat in overnight trading.
  • S&P came within a few points of testing the upper channel line and once again saw price action move well beyond the upper Bollinger Band, which usually invites a wave of selling in the short term. 
  • Volume on the S&P has continued to drop for seven days now, and daily volume levels are now well below what has been average of late. 
  • These low volume  levels are a bearish divergence, coupled with some of the price patterns/candle patterns, indicates the market is on very unstable ground, despite the gains we have seen of late.
  • China raised their interest rates again but such news has had little in the way of lasting impact on the market. 
  • 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 weakness.
  • Three support levels to watch on the S&P (as of Monday’s Close): 1299 (10-day MA), 1291 (20-day MA) and 1288 (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.
  • 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.
  • 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.
  • For the bears – Use the slight weakness in the market this morning as an opportunity to drive the markets lower today without the dip-investors erasing those efforts. 
  • For the bulls – Hold/consolidate near the highs, very best scenario would be a push beyond 1325.
  • 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 yesterday at $10.30 for a 1% loss. Stopped out of TWM for a 4.8% loss. 
  • Shorted DBLE yesterday for a 6.2% gain. Position is closed. 
  • Still building my DIA Puts position. 
  • Shorted LSI at $6.42 yesterday, shorted GLD at $131.74. Long QID at 10.30 at the close as well as TWM at $11.65.
  • 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.