Complacency took a big bite out of the bulls.

Complacency is dangerous in the market.  When trader and investor slip into the thinking that the market is safe and there is nothing to worry about,  it’s time to very worried!  When complacency and resistance highs meet, it can trigger the perfect storm.  Suddenly everyone becomes hyper-aware of the danger, and they begin to sell with both hands.  The market itself appears to just leap out of the window.  Volatility will now be high for a period, and price action will become more erratic.  The index charts look like a slow moving train wreck.  Go ahead and watch it but do it from a safe distance.

On the Calendar

Thursday kicks off with the weekly Jobless Claims numbers at 8:30 AM Eastern followed by the Philadelphia Fed Business Outlook Survey.  The Philly Survey is a snapshot of manufacturing health within that specific district.  The expectation is for additional strength this month.  April came in at 19.6 with an expectation of a 22.0 reading this morning.  On the Earnings Calendar, we have 61 companies reporting this morning.  Among them are BABA and WMT.

Action Plan

My plan for today is simple.  Manage my few remaining positions and sit on my hands.  Futures are pointing to a gap down of about 100 points this morning.  Clearly, emotions are high.  The VIX shows us that complacency was at record levels.  Traders and investors alike that had been lulled to sleep are now in panic mode.  Don’t be surprised to more selling and volatility continue to rise.  A relief bounce could come at any time, but I wouldn’t expect it to be tradeable except by very experienced traders.

If you are a new trader or inexperienced, I highly recommend you stand aside.  Practice in a paper account, watch and learn how these events affect price movements.  Allow the volatility to dissipate and wait for clear entries.  If you think you can predict the turns; Stop right now!  Emotions are unpredictable and can pivot on a dime.  Calmer heads will prevail eventually but until then protect your capital.

Trade wisely,

Doug