The Bears have their nose in the door.

With the follow through selling on Friday, it would appear the Bears have their nose in the door and smell a tasty opportunity.  The Bulls will have their work cut out for them with the significant technical damage that has now occurred in three of the major indexes.  A short-term oversold condition exists, and a bullish bounce is likely to begin soon.  However, I would not assume the down trend is over.  Any bounce or rally back to resistance could set up more selling.  If you do decide to trade, keep that in mind as you plan the position.  Technical damage such as this not likely to be repaired quickly.  There is no rush.  Wait for a defensible entry with solid evidence that the bulls are regaining control before risking your hard-earned money!

On the Calendar

It looks as if the Economic Calendar has decided to take most of the day off to watch the eclipse.  At 8:30 AM Eastern there is a single report from Chicago Fed National Activity Index.  As a general rule, this report will not move the market.  Other than that we have a bill announcement and a couple of bill auctions wrapping up the day.

On the Earnings Calendar, we have just over 50 companies reporting earnings today.  Scanning through the list, I don’t see any that would be market moving reports.  However, it is always wise to make sure are checking your current holdings and those you are considering to trade.  It only takes a couple of minutes but could save you thousands in trading capital.

Action Plan

Friday was a tough day for the traders that jumped in on Thursday trying to buy the dip.  While the DIA managed to hold on to the 50-Day SMA, the SPY and the QQQ’s both closed below.  Technically the QQQ’s are in better shape than the SPY having managed to close just above the low on the 10^th.   The SPY is now technically in a downtrend and a candidate for a Blue Ice Failure pattern after a brief rally.  The IWM is by far the weakest of the indexes closing well below the 200-day average, however, holding onto a major price support built over the last ten months of trading.

I was quite content with my decision to stand aside on Friday.  As I will be gone shortly after the open to meet with a group of astronomical scientists to study the eclipse, I will not be trading today either.  Although the futures were negative all night long, they are now suggesting a flat open.  Personally, I believe that the indexes are currently over sold in the very short-term.  A bounce or relief rally could begin at any time, but please don’t interpret that as an invitation to buy the dip blindly.  There is a lot of technical damage in the SPY, QQQ, and IWM.  Any bounce or rally may serve to attract more Bears so be very careful.  Also, keep in mind much of the US will be out observing the eclipse today.  I would not be surprised if the volume was light and the price action was choppy most of the day.

Trade Wisely,

Doug