3-day weekend.

Thus far earnings and economic data have continued to fuel the relief rally that is now six days old.  Both the DIA and SPY are at key levels, and the question is will the bulls hold strong as we face a 3-day weekend.  Currently, futures are pointing to a modestly positive open.  A very nice change from the daily triple-digit gaps of the last couple weeks.  Personally, I would like to see the market rest and consolidate, but not surprisingly the market does not care about what I want.  Consequently, I need to prepare for anything and sadly that must include the possibility that the bears could re-emerge ahead of the long weekend.  Plan carefully and remain focused on price action.

On the Calendar

Friday’s Economic Calendar gets started at 8:30 AM Eastern with Housing Starts and Import/Export Prices.  Consensus expects January Housing starts to come in at a strong 1.232 million annualized rate with permits declining slightly to 1.300 million vs. 1.302.  The consensus for Import/Export Prices expects a gain of 0.6% in import prices and 0.3% for export price gains.  At 10 AM we get a reading on Consumer Sentiment which is expected to decline only slightly to 95.5 vs. the January number of 95.7 suggesting no panic in the recent market selloff.  After that, we have reports on E-Commerce Retail Sales at 10:00 AM and the Baker-Hughes Rig Count at 1:00 PM but both are very unlikely to move the market.

On the Earnings Calendar, we get a break in the pace of earnings reports with less than 60 expecting to fess up today.  Stay on your toes because we have about 700 companies on the calendar next week.

Action Plan

Yesterday the market produced a very big whipsaw to test the nerves of traders.  The Dow gapped up more than 200 points but slipped negative within 1.5 hours then rallying 300 points into the close.  That means that over the course of the day the Dow traveled more than 700 points.  Just what the doctor ordered for quick day traders but challenging for swing traders.  For the first time in 2-weeks of trading, the futures are not suggesting a triple-digit gap.  In fact, as I write the futures are close to flat but of course, as earnings and economic reports roll out a lot can change.

The relief rally is now six days old bring the DIA and SPY back above the 50 SMA.  The QQQ’s have established clear leadership, and the poor IWM continues to lag behind still below key resistance levels.  As you plan your day, keep in mind, that we have a 3-day weekend ahead.  After six days of rally and facing a long weekend it would not be surprising to see a little profit-taking begin.  However, with volatility remaining so high, anything is possible.  Guard against complacency and remain focused on price action clues.

Trade Wisely,

Doug