What a difference a day makes!

The ugly whipsaw yesterday took the market over confidence to the wood shed and beat it half to death.  What a difference a day makes!  In my note yesterday I wrote the importance of having a plan for a reversal that could happen at any time.  I also mentioned the dangers of over-trading an extended rally.  Believe me; I understand how easy it is to get caught up in an extended rally.  A mistake I made over and over for years.  Being prepared for a possible reversal is not an act of bearishness.  It’s simply a responsible and disciplined act of good business practices.  We can not predict the time and date of such price action but can prepare a plan on how to deal with it and avoid poor emotional decision making in the heat of battle.

On the Calendar

The last Friday of the July begins with a very importing number on the Economic Calendar.  The final estimate of the 2^nd quarter GDP releases at 8:30 AM Eastern.  Consensus suggests it will come in with a solid 2.6% annualized rate with retail sales leading the way.  Keep in mind the GDP number can move the market.  Out at the same time is the Employment Cost Index which jumped up 0.8% in in the 1^st quarter but the forecasters see that slowing slightly with a reading today expected at 0.6%.  Consumer Sentiment is at 10:00 AM and is expected to show continued strength with a reading of 93.1.  After that, the only thing of note is a Fed speaker at 1:20 PM this afternoon.

On the Earnings Calendar, there are about 100 companies expected to report today.  Stay on your toes and continue to check earnings dates for companies you hold or are thinking of buying.

Action Plan

Yesterdays whipsaw should not have been a surprise to RWO readers.  We can never know the date and time when something like this will occur but as I have been saying, prepare, because the possibility exists.  Gap up’s to new market highs should always put us on high alert for the possibility of whipsaw price action.  The VIX at historic lows only adds to the high alert status.

The whipsaw made a mess of a lot of charts, and I suspect could be a warning of higher volatility days to come.  Choppy markets are dangerous and very difficult to trade.  It may be wise to curtail trading activity until we get better clues on direction.  There is also a mix of signals in the Index charts raising some concern.  The DIA managed a full recovery closing at a new record high.  However, the SPY and the QQQ closed with ugly bearish engulfing candles although well off the day’s low.

Futures were negative all night but have recovered slightly in the early premarket.  Toss in the Senate’s failure on the health care bill, and the AMZN earnings miss and explosive volatility could be the result.  Overall the trend continues to be up, but I will not likely seek to add new risk ahead of the weekend with such price action confusion.  I will, however, be very focused on managing current positions and taking profits where possible to reduce exposure to the market.

Trade Wisely,

Doug