FOMC and Earnings a Volatile Combo

We have enjoyed the steady and strong rally, but the road ahead could be a bit bumpy ahead.  As earnings reports ramp up and the VIX has fallen to historic lows.  Toss in the FOMC, and we have an explosive combination that could trigger significant volatility.  Price action is currently very bullish but doesn’t ever think the market is safe and simply can’t go down.  Complacency is a very dangerous for traders.  Anything can happen.  Be prepared at all times.  I am always especially focused on price action when futures point to a gap up to new market highs.  It’s the perfect setup for a pump and dump by the big boys so don’t chase!  Have the discipline to plan carefully and follow the plan.  Your success depends on it!

On the Calendar

Today on the Economic Calendar there are three reports that are unlikely to move the market.  They are the Housing Price Index, Richmond Fed MFG, and Investor Confidence.  The two reports that could move the market is the S&P CoreLogic Case-Shiller HPI at 9:00 AM Eastern and the 10:00 AM Consumer Confidence.  The Case-Shiller topped earlier this year and has since moderated.  The number is expected to come in at 0.3% with the year-on-year number at 5.8.  Consumer Confidence consensus for July is expected to come in at a very strong 117.0.  Also, keep in mind that the FOMC meeting today with interest rate announcement at 2:00 PM tomorrow.

On the Earnings Calendar, we have 184 companies reporting today, so it would be prudent to stay on top of reporting dates for the companies you own and are thinking of owning.  After the close yesterday, GOOGL seemed to have disappointed the market, and the stock is indicated down 25 points this morning.  It will be interesting to see if that affects the QQQs and the very strong rally of late.

Action Plan

Yesterday’s trading started pretty slow and choppy but as the day progressed the Bulls seemed to gain the upper hand finishing the day strong.  The DIA tested and so far held price support,  SPY held up extremely well, QQQ closed at a new record high, and even the IWM rallied off of support.  Consequently, price action continues to suggest bullishness.  If earnings reports continue to impress the market, then we should expect more records high closes to come.

Today I will be looking for new positions, but I will also be watchful of whipsaw price action.  Futures are suggesting a gap up open.  Anytime I see the market gap up to new record highs I’m always watchful of the professional pump and dump creating that whipsaw price action which is very difficult manage.  As a result, I will wait 20 to 30 minutes after the market opens focusing on price actions and making sure real buyers are supporting the gap.  Please keep in mind the market would normally become soft as we wait for the FOMC.  Toss in about 200 earnings report, and we have a potentially volatile combination.  It would be wise to prepare for anything.

Trade Wisely,

Doug