Focus on your rules and trade plan.

The October rally has been a full-on Bull party that has lasted 15 days in Dow.  As with all great parties they eventually come to an end and the hangover begins.  I’m sure there are many looking at the futures this morning might be feeling some panic, but try to put this pullback into perspective.  As it stands right now, Dow 23,000 is holding and the sky is not falling.  All healthy rallies must take a break or pullback to test trends or price support.  It’s the natural progression of price action.  So, try to avoid knee jerk emotional decision making today.  Focus on your rules and trade plan.  They are there to protect you but only if you allow them to do so.

On the Calendar

The Thursday Economic Calendar begins with Jobless Claims and the Philly Fed Business Outlook Survey at 8:30 AM Eastern.  With the hurricane effects still a bit of a wild card, forecasters expect the weekly claims coming in at 243K this week.  The Philly Fed Survey remains incredibly strong last month coming in at the highest level in the 50-year history of the report.  The consensus for October is 20.2 vs. 23.8 last month.  We have one Fed Speaker at 9:45 AM followed by the Leading Indicators report at 10:00 AM.  The Treasury Budget is at 2:00 PM but would be highly unlikely to move the market.

Today is the biggest day of the week on the Earnings Calendar with more than 120 companies reporting.  Stay on your toes as ramp up the numbers of reports because it’s not unusual for the market to become quite bumpy.  Individual stock can have violent moves that carry over into the indexes in the premarket and aftermarket sessions making it very challenging for the retail trader.

Action Plan

While the DIA and SPY managed to close at new record highs yesterday the QQQ and the IWM seemed content to just consolidate.  The DIA leaving behind a big gap at a new market high always concerns me and it would appear that concern is valid looking at the futures this morning.  The 160 points gained in the DOW yesterday may now be mostly taken back with gap down at the open.  A clear reminder that chasing a rally can be a very painful lesson.

As usual I will be more focused on taking profits as we head into the weekend than looking for new risk.  With the gap down keep a close eye on current trades cutting losing positions and taking profits as per your trade plans.  Try to avoid emotional decisions and stay focused on your rules because they will protect you from you.

Trade Wisely,

Doug