Support?

Friday certainly was a rough day for the market capping off one of the worst weeks in several years.  As nasty as was the market received answers to two very important questions.  Will the SPY 200-day average provide some support?  Will bulls be willing to take the risk even though the DIA and QQQ’s didn’t reach that deep.?  Both answers come back affirmative, and the Dow Futures indicate more are willing to dive in this morning.

Volatility is still extremely high making it very dangerous as huge reversals can still happen at any time.  With this morning’s huge gap up it puts the Dow’s price support about 600 points down.  With the volatility still so high that is way beyond my tolerance for risk.  Consequently, I will maintain my discipline and not get caught up in the morning hype.  I will not chase!

On the Calendar

We begin this week with another light day on the Economic Calendar.  Amid several bonds events, the only potentially market-moving report comes at 2:00 PM Eastern with the Treasury Budget.  The consensus is calling for a sizeable deficit of 51.0 billion and is the first post-tax reform report.

To keep us on-our-toes we have just under 80 companies reporting today.  Make sure to have a plan if you are holding or intending purchase a company at or near it reporting date.

Action Plan

Friday was a pretty gruesome day until the bulls staged an impressive rally in the last hour of trading before the weekend.  The rally began after the SPY broke below the 200-day simple average.  The DIA didn’t make to the 200 nor did the QQQ, but they both seem to have reacted to a price support level.  The IWM had fully given up the 200-day average but managed to recover back above with the end of day bullishness.

Dow Futures this morning are signaling a huge gap up of more than 300 points.  Personally, I refuse to chase a big gap, and I instead will stick to my discipline an wait for low-risk entries.  It’s great to see the bulls stepping back in, but that in no way shape or form means that its safe to get back into the water just yet.  Keep in mind the VIX closed on Friday above 29 which means very fast price action and reversals are still likely.  If you’re a very experienced and very fast day-trader, then this price action is just what the doctor ordered.  However, if you’re a swing trader, the huge intra-day whipsaws create a risk that is well beyond the risk-tolerance of most traders.

Trade Wisely,

Doug