Battle for Control

Yesterday’s defense of support was indeed a very welcome sight.  Price action would suggest that the bulls may be gaining the upper hand, but this battle for control will still require a significant effort.  Although the QQQ and IWM are above the 50-day average, the SPY and the DIA are still below giving a reason for caution.  As this battle for control plays out, keep in mind that the VIX is still indicating significant volatility.  It would also be wise to remember that the Employment Situation number Friday morning has the potential to move the market substantially.  The market seems to be very sensitive to any hint of inflationary pressures.  Friday’s report could provide and important clues to the next FOMC action.

On the Calendar

There is a full Economic Calendar today, but there is only one report that’s likely to move the market.  At 8:30 AM the Jobless Claims number came in at a 49-year low last week should rise slightly to 220,000 according to consensus.  We will also hear from the Challenger report, Consumer Comfort, Services Survey, Nat. Gas Report, Fed Balance Sheet and Money Supply and several bond events throughout the day.

Today is the biggest day of the week on the Earnings Calendar with 236 companies expected to report.  Make sure to check reporting dates on the companies you hold and those you’re considering to purchase.

Action Plan

After gapping sharply lower, Wednesday proved to be a roller coaster ride as the bulls and bears fought for control.  By the end of the day, the bulls had the upper hand with the SPY once again testing the 50-day average from below.  The QQQ held firmly as the market leader, and in a surprising show of strength the small caps confidently broke resistance levels as well as defeating the downtrend.  The Dow is the market laggard still more than 400 points below its 50-day average and 200 below the big round number of 25,000.

Futures this morning are currently suggesting a flat to slightly bullish open with the VIX hovering around a 17 handle.  With bulls showing a strong willingness to defend price supports I’m cautiously optimistic that they are gaining the upper hand.  However, with the DIA and SPY still below the 50-day and important clues on inflation coming in Friday morning Employment Situation report, anything is possible.  Stay focused on price and remain flexible.  Don’t buy anything that you are not willing to hold through some volatile swings.  Smaller than normal position sizes can be a good way to plan for the additional volatility.

Trade Wisely,

Doug