Trading Plan for February 8, 2012

Economic Reports Due out (Times are EST): MBA Purchase Applications (7am), EIA Petroleum Status Report (10:30am)

Premarket Update (Updated 9am eastern):

• US Futures are slightly higher heading into the open.
  
• Asian markets averaged about 1.25% in gains.
  
• European markets are up about 0.4% overall
  

Technical Outlook (S&P):

• Yesterday provided the markets a nice opportunity to stop and smell the roses some. More of these kinds of days, over the next week, would  be ideal for the market, allowing it to work off overbought conditions. 
• Any major rally at this point will all us to challenge the 5/2 Bin Laden Recovery highs at 1370.
• Volume was on par with what we’ve seen over the past few days. 
• This was similar price action to what we saw during the 1/26-1/31 pullback. A few more days of similar action would be helpful to cool off the markets some. 
• It is key for the S&P to hold on to 1331, as it represents the previous multi-year resistance level (now support). Yesterday the S&P saw lows of 1335.
  
• Trend-line support is at 1295 off of the 11/28 lows. 
• We remained as overbought as ever, which eventually has to be reconciled. 

My Opinions:

• The daily price action, beyond the obvious ‘buy-the-dip” action has been to breakout and move higher, followed by a few days of consolidation and slight pullback. Rinse and repeat.
• Sideways trading over the next few days wouldn’t surprise me in the least bit here, even over the new week or so. In fact, it would be considered healthy for the markets to do so. 
• We have yet to see the “buy-the-dip” mentality cease. Each market open where weakness is present, the bulls buy the open, no matter what, and recovers most if not all of the day’s losses. As long as this persists, the bears do not stand a chance, and the bull rally will prevail.
• This rally is due in large part to the fed easing that will last through 2014. My guess is that it will be difficult for the bears to stomp on the bulls while this in-direct/shadow QE takes place.
  

Chart: