Follow Through

Yesterday’s big bullish move was certainly encouraging.  Obviously, the market has no trouble making big daily moves and has certainly proved that over the last couple weeks.  Following through, on the other hand, seems to be a puzzle the market seems unable to solve.  Yesterday the Dow gaped up nearly 300 points and managed to push higher closing up 428 on the day.  However, with the Dow Futures currently indicating to a gap down of more than 200 points at the open follow through once again appears to be a major problem.

To maintain a trading edge, most traders need at least one day of follow through in a stocks price action.  Even during periods of normal market consolidations, good technical analysts can do very well.  Unfortunately, when the market experiences big overnight gaps on a daily basis that changes direction almost every day maintaining an edge is nearly impossible.  The good news is this very whippy price action will eventually end, and better days lie ahead.  Protect your capital and wait for those better days when the market proves it can follow through or watch your account get chopped to pieces trying to fight the whip.  The choice is yours.

On the Calendar

On the hump day, the Economic Calendar has four potential market move reports.  At 8:30 AM Eastern the Consumer Price Index is expected to come in flat according to consensus.  Core prices could see a modest 0.2% increase with the overall CPI rising to 2.1%.  At 10:30 AM is the Petroleum Status Report which is not forecasted forward but has recently seen supplies decline supporting oil prices.  Then at 2:00 PM we get to take a look at the minds of the FOMC with the release of the minutes which can obviously move the market.  Also at 2:00 PM is the Treasury Budget which is expected to show a large deficit of 186 billion.

On the Earnings Calendar, we only have 11 companies reporting earnings.  Notable before the bell is FAST and after the bell, BBBY step up to report.

Action Plan

We whip up one day and whip down the next, chopping up accounts and destroying the confidence of traders trying to fight it.  After a nice gap up and run yesterday traders now face another overnight reversal with the Dow Futures pointing to more than a 200 point gap down.  If you stand in a fire, then you have to accept the likelihood you will get burned.  There is little to no edge for swing traders in this kind of whippy price action.  As a result, I will continue to stand aside protecting my capital from being chopped up and waiting for an edge to return.

Trade Wisely,

Doug