Bearish engulfing price action at resistance.  Bears gain the advantage.

The bearish engulfing candles left behind yesterday on the DIA and SPY put the Bears in temporary control of market direction.  The fact that they took control right a price resistance is also very important as well as concerning.  Clearly daily supports are still in place, but we should expect at a minimum a strong challenge.  There is no need to panic but caution flags and warning lights are flashing.  This bearish attack could be short lived but it could also be the first warning sign that this bull run has come to and end.  The Bulls will certainly fight back but we should never ignore the seriousness of a potential failure at resistance.  Plan accordingly.

On the Calendar

The Economic Calendar starts to heat up today with some important reports through weeks end.  Import and Export Prices kick things off at 8:30 AM Eastern time followed by the Petroleum Status Report at 10:30 AM.  This afternoon at 2 PM the Treasury Budget will be released.  Of these reports, the most likely to move the market is the Oil Status Report.  Also noteworthy are the two mid-day Fed speakers.  The Earnings Calendar has over 350 companies reporting today.

Action Plan

The last couple days I have been warning about the dangers of getting overly long a market that’s struggling to break resistance.  Yesterday afternoon the Bears began to overwhelm the Bulls breaking intraday support levels.  This morning the Bears continue their offensive with futures number suggesting the Dow will gap down about 50 points.

Watch your positions closely this morning and be prepared to take profit or exit trades to stop losses if necessary.  The SPY and the QQQ seem to be less affected, but if the DIA continues to push lower, it certainly has the power to pull the other indexes down.  So at least for this morning, the plan will be account management, possible profit taking, and capital preservation.  Keep in mind that daily supports are still in place, so there is no reason to panic, but we also don’t want to bury our heads in the sand.  Always be prepared to act.

Trade wisely,

Doug