Short Santa!

Yesterday’s price action left some reason for cautiousness.  Three of the four major indexes left behind bearish candle patterns.  How dare they Short Santa!  The truth is love shorting because of the very quick money made during a panic move.  However, for retail traders, we have to be very careful about predicting market tops and jumping to early.  Been there, done that and have a lot of battle scars to remind me of the big losses that can occur when trying to predict.  Unless you are willing to endure nasty whipsaws and being run over in a short squeeze, don’t short a trending market!  If you think the market is failing then stand aside and wait for it to prove.  It’s the big boys that will decide a top, not retail traders.  Once they make that decision, it will be very obvious, and we will have plenty of time to participate.  Try to predict and get eaten by the sharks.

On the Calendar

The hump day Economic Calendar gets doesn’t get going until 10:00 AM Eastern with Existing Home Sales.  Existing sales increased in October 2.1 percent to a 4.870 million rate.  Forecasters are expecting, even more, strength. December consensus expects a 5.550 million reading.  At 10:30 AM we get the EIA Petroleum Status Report which is not forecast but has shown a trend of rising supplies and concerns about overall demand.

On the Earnings Calendar, we have 20 companies expected to report today.  Notable before the bell is GIS and WGO but after the bell keep an eye on BBBY.  Don’t get caught by an earnings event.  Always check reports against your portfolio!

Action Plan

After a gap up open, the bulls decided to take a siesta and allow the bears to have a little snack.  The DIA, SPY, and IWM left behind bearish engulfing candles, and the QQQ joined in to slide south as well.  Although caution is warranted, the futures have been signaling all night that a follow through move down will be challenged by the bulls.  Perhaps it’s due to the Tax Reform bill passing the Senate or the good earnings reports from FDX and MU.  However at this point but the bulls don’t seem ready to give up just yet.

If the futures continue to show strength into the open those who got short early could get trampled under by stampeding bulls.  I’m not sure there is enough short interest to trigger a full on short squeeze, but you never know.  Equally possible is that the gap up open could be meet with some very hungry bears.  Stay on toes and focus on price action clues.  Remember Congress will have to act quickly on a budget to prevent the government from running out of money midnight Saturday.  The spin doctoring in the new could easily toss the market around so don’t dip into that eggnog just yet.  It’s also important to note that with the holiday weekend fast approaching volumes could quickly decline so plan accordingly.

Trade Wisely,

Doug