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More Risk Than Reward in This Market

The market is overextended; traders should wait for a better entry point


Current Long Positions (stop-losses in parentheses): TICC ($10.28), NFLX ($165), MCD ($76.92), QID ($11.92)

Current Short Positions (stop-losses in parentheses): None

Bias: 7% Long (-10% short considering the leverage in QID)

Economic Reports Due Out (times are EST): ICSC-Goldman Sachs store sales (7:45 a.m.), Redbook (8:55 a.m.), wholesale trade (10 a.m.)

My Observations and What to Expect

* Futures are showing some strength after rallying off of overnight lows on European market strength.

* Asian markets were mixed, while European markets are showing positive gains across the board.

* Like yesterday, the market still needs to come back down some as it is currently overextended, making a trade at this point filled with more risk than reward. 

* With the upside break through the 200-week moving average, history suggests that such an event leads to a significant long-term rally in the markets.

* 1,275 on the S&P (give or take a few points) represents the next area of resistance on the charts.

* Also causing resistance in the very near term is the fact that we are at the 61.8% Fibonacci retracement level from the October 2007 highs to the March 2009 lows.

* Initial support for the S&P on a pullback lies at the April highs, which is 1,219 or 6 points below where it is currently trading. We tested this level yesterday, and bounced quickly thereafter.

* I’d continue to urge people against shorting the market on the premise that the market is “too high” or the “economy is awful.” There is no reason right now to be heavily shorting with the belief that this market will see an extended downward move.

* There are no major economic news reports scheduled and earnings season is starting to wind down.

* The bears’ aim is to hold the Fibonacci retracement levels, and push the market down closer to the 10-day moving average and ultimately challenge those price levels (S&P 1,198).

Actions I Will be Taking

* Covered my short position in Starbucks Corporation (NASDAQ: SBUX) yesterday at the open at $30.40 for a gain of 1.7%.

* Will look to sell ProShares UltraShort QQQ ETF (NYSE: QID) on any market weakness today.

* Will add one or two new long positions to the portfolio on any decent amount of market weakness.

* I will wait for a better entry into this market, even if that means I sit out another day or two of market strength.

* Follow me in the SharePlanner Chat-Room today for all my live trades, including my day trades.

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