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Traders Should Exercise Caution on Open

Volatility in overnight futures trading should be an alarm to traders


Current Long Positions (stop losses in parentheses): TICC ($10.28), NFLX ($172.58), MCD ($77.74), BIDU ($111.99), SPY ($119.90), CTXS ($64.13), MENT ($11.08), MON ($61.20)

Current Short Positions (stop losses in parentheses): None

Bias: 73% Long

Economic Reports Due Out (times are EST): Consumer Sentiment (9:55 a.m.)

My Observations and What to Expect

* Futures are down significantly, but has managed to bounce off of overnight lows.

* Asian markets closed well below 1% across the board. European markets are down, but have managed to rally substantially off of its lows.

* S&P once again bounced after testing the 10-day moving average and the trendline that began in late August. This is a sign of strength by the market.

* S&P stands poised, yet again, to test the 10-day moving average and August trendline. The 20-day moving average is also in play, which the market has not traded below since Sept. 1.

* Today marks the first day of QE2. The full schedule can be found here.

* One big question surrounding Wall Street is whether QE2 will represent a “sell-the-news” type of event.

* A lot of volatility in overnight futures trading should be an alarm to traders to be very careful heading into the open.

* A doji hammer candle formed yesterday, which further signifies that buyers continue to “buy the dip.”

* One lesson that bears should have learned this year is that when you have profits, take ’em! Don’t let the inevitable bounce wipe those gains out.

* S&P 1,227 represents a near-term support level for the bulls, while 1,275 (give or take a few points) represents the next area of resistance on the charts.

* Also causing some 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.

* Yesterday was another failed opportunity by the bears to drive this market lower. In some sense, the bulls came away from yesterday’s market session a bit more emboldened. Today, with the early morning weakness in the markets, the bears need to push this market lower, and close at the day’s lows and below the 10-day moving average.

Actions I Will Be Taking

* Added two new positions to the portfolio yesterday: Mentor Graphics Corporation (NASDAQ: MENT) and Monsanto Company (NYSE: MON).

* Stopped out of FLIR Systems, Inc. (NASDAQ: FLIR) yesterday at the market open at $28.18.

* Will be closely watching the activity in my positions and won’t hesitate to start closing out positions if this market wants to tank on the Cisco Systems, Inc. (NASDAQ: CSCO) earnings.

* Should the market hold major support levels as noted above, I will consider adding one or two new positions to the portfolio.

* Tightened the stop-losses in, Inc. (NASDAQ: BIDU), Citrix Systems, Inc. (NASDAQ: CTXS) and MENT.

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

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