Extreme Moves

We all know that that the bulls were over exuberant and pretty much everyone and their dog expected a pullback.  However, Friday’s extreme moves appeared to be excessive, right?  Honestly, not so much.  If you put it into the context of a 16500 point rally in the first 25-days fo January, you realize it’s only a reversion to the mean.  Nevertheless, the violent nature of the move is shocking an I doubt anyone expected a 700 point move in one day!  Volatility is very likely to continue making swing trading very challenging.  Don’t make a mistake and assume that the market is suddenly oversold and predict the will rally.  It can simply consolidate before resuming a downtrend!

On the Calendar

The is only one report of consequence on the Economic Calendar today.  At 10:00 AM Eastern is the ISM Non-MFG Index which has cooled recently but remains mostly in the mid-50’s indicating growth.  Forecasters are calling for an increase to 56.2 today.  After that with have some bond announcements and auctions to round out the day.

On the Earnings Calendar, we have 70 companies reporting.  Stay on your toes this week there are a lot of reports on the calendar.  Prepare, plan and always check reporting dates of companies you own and those you are thinking of buying.

Action Plan

Without question, Friday produced shocking bearishness breaking supports as traders ran for the exits ahead of the weekend.  Swing traders are mostly positive people, and the vast majority only want trade long.  As a result, when they see a huge move lower like we did Friday they naturally want to believe the selloff is over.  They try to predict when the bounce will occur only to find out that the sellers have more to say.  Much like this morning with the Dow Futures suggesting more than a 200 point gap down!  Even when the selling does stop, keep in mind that it could just consolidate before moving lower.  Consider the fact that Dow 25,000 needs a test as support.

Remember every day does not have to be traded to be successful.  Wait for good quality signals and remember the market is now very emotional.  Big morning gaps and intra-day reversals could be the new normal in the short-term.

Trade Wisely,

Doug