Today’s Trading Plan: To Bounce or Not to Bounce

Technical Outlook:

• Yesterday marked another massive sell-off in the indices with SPX dropping 2.4% down to 1943 (a 47 point drop). 
• There is really no support in between the current SPX price and the September lows. That doesn’t mean it falls straight down, but does mean there is a much better chance of ultimately testing it. 
• However, don’t expect that SPX will just drop straight to that support level without seeing a short-term bounce first, and we are seeing that possibly in the futures this morning. 
• SPY volume matched that of Monday’s reading. Very solid amount of above average-selling that took place yesterday. 
• 30 minute chart of SPX is extremely oversold and suggests a bounce that could easily take the market up 60 points before stalling out and selling off again. 
• Bears got exactly what they needed out of the VIX yesterday as it rose 21% to 24.99 and shattered the declining resistance at 23. 
• T2108 (% of stocks trading above the 40-day moving average) also took a hit dropping 28 points down to 17% which is an area where the fear starts to really pile up. It is also just a shake above the rising trend-line off of the August lows. 
• Very careful trading in this market at this point in time. Take profits aggressively. 
• The major moves in the indices 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 30 points.
• REMEMBER THIS FROM YESTERDAY? “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. “
• 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. 
• Oil continues to struggle in finding any kind of bottom in this market.
• 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 QLD resulting in a flat day. 
• 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: