Today’s Trading Plan: China and Oil, Oil and China

Technical Outlook:

• Another day of heavy selling yesterday for the fourth time in the last five trading sessions. 
• Now you have China being halted last night for the second time this week, after dropping 7% during their trading session. As a result, US futures are seeing another major sell-off taking place today. The S&P is looking at an open of as much as 50 points lower from yesterday’s close. 
• SPY has shown just how tight the trading range has been over the past three days as the opening price is right near the closing price of the day. The major moves are taking place while the market is closed. 
• Gap risk is a significant issue right now for traders. There is just as much of a chance of waking up to /ES futures being up 30 points as there is having /ES futures being down 50 points like it is today. 
• The market right now is basically a roulette wheel in its overnight gaps. Red or Black – right now red is running hot. But an oversold, short covering rally is setting up to take place very soon. That is why trying to chase this market to the downside is to do so at one’s own peril, because the moves are not happening during the day where one’s positions can be adequately managed, instead they are happening overnight with the consequences being met at the market open. 
• That is why I have yet to hold a position overnight in this market. I am still 100% cash and very happy to be so. 
• VIX is set to rise sharply today after only rising 6.5% to 20.59 following a 26 point sell off on SPX. Watch the 23.20’s to provide possible declining resistance. Check out my post on this from Tuesday. 
• Very important are two matters: 1) SPX closed below $1993 for the first time and effectively outside of the current range. 2) SPY has closed well below key support at $200. 
• SPY 30 minute chart is showing some major gaps that are being left unfilled and there is about to be another major gap created this morning due to the major sell-off in futures. 
• Volume rapidly increased yesterday and well above recent averages. 
• Oil continues to struggle in finding any kind of bottom in this market. USO is poised to open up below $10.00 – astounding. Oil futures are trading below $33. 
• Counting the overnight futures, SPX is looking at roughly a 140 point move in the last 6 trading sessions. That shows you just how bad things can get and how quickly it can do it, once it takes a notion to do so. 
• China continues to hold a heavy sway over the markets, and the main culprit of late for the wild price swings.
• Extremely volatile market conditions right now; entry timing at this stage is very difficult and very essential to successful trading when this unpredictable. 
• Potential head and shoulders pattern forming on SPY going back to November of 2014. Though a very sloppy one. 
• Lots of theories floats around January stock performance, from the first day, first three days, and first week of trading being a barometer for the returns of the rest of the year. I don’t put much weight behind these theories, and find them highly circumstantial.   
• January has been a very volatile month in recent years to trade. Careful navigating it. 

My Trades:

• Did not add any new positions.  
• Did not not hold any positions overnight. 
• Day-traded UPRO yesterday for a -1.8% loss. 
• Currently 100% Cash!
• Large overnight gaps are making it difficult to establish new positions, as the majority of the move is happening overnight and not during the trading session. Ideally, you would like the big moves we’ve seen so far this year to happen during the trading session, and not when the market is closed, as it takes the large majority of the profit potential away, unless the market chooses to reverse back to the upside. 
• Nonetheless will look to play the market in either direction today where a solid edge can be gained and traded favorably. 
• Join me each day for all my real-time trades and alerts in the SharePlanner Splash Zone

Chart for SPX: