Complete Tuesday Game Plan

Markets started the week stubbornly, after shaking off early weakness to finish near their highs for the session. Classic bull market characteristics. Unusual behavior for a Monday. The S&P 500 continues to trade well technically as it has bounced off its 50 day SMA quite a few times now. The Nasdaq recaptured its 50 day SMA, although it would have been more impressive if more volume accompanied the move. Volume is something I watch very closely, but has been fairly quiet as of late. It is important to me in my trading ideas, but I always remember a trader spoke “you can go broke on low volume”. Meaning you need to honor your stops regardless off how soft volume may be. Some notable moves today came from CAT. After a slight dip below 80 post earnings, the stock demonstrated capitulative action as it had a bullish outside day on enormous volume. We discussed last Friday that the stock was at the low end of a channel it had been in with the 80 handle being tested during the weeks ending 7/13/12 through 7/27/12 then again the week of 11/16/12. It actually during each of those weeks traded below 80 on an intraweek basis, but every one of those weeks closed above 80. Their is still a very large consensus of an impending correction, and one will come for certain. Perhaps it will not come however, until those making these ad nauseum calls give up, and we get something resembling an exhaustion gap.