Rising Concern

Good earnings reports, no interest rate increase and the bulls don’t seem to care.  I don’t know about you that is becoming a serious concern to me.  With the DIA and the SPY once again dipping toward the 200-day-average I’m becoming increasingly concerned that bears could seek a retest of the April lows or possibly lower.  With the Futures pointing to a flat open and the bulls seemingly unable to respond to good reports traders should be on high alert.  A failure below the 200-day-average could embolden the bears to launch a full assault to find the next level of support which on the Dow could be more than 500 points lower.

I don’t intend to sound all bearish because it is still very possible for the bulls to launch a defense but they have better get to it pretty darn soon.  As always stay focused on price action for clues.  It’s certainly okay to hope for the best as long as you have a plan to protect your capital form the worst.  Personally, I think the market is near a critical decision point that could define the course of the next several months of trading.  Be prepared.

On the Calendar

We have a busy day on the Economic Calendar with five potential market-moving reports, three of which come out together at 8:30 AM Eastern.  According to consensus, the International Trade deficit is expected to decline to $49.9 billion in March vs. the February print of $57.6 billion.  The weekly Jobless Claims expect labor demand to remain strong but see claims increasing to 224K this week.  Productivity and Costs report expects to show a modest increase in first quarter production of 0.9% annualized but also see labor costs increasing 3.0%.

At 10:00 AM Factory Orders expects March durable goods orders to increase 1.3 while capital goods orders point to a slowing in business investment.  Also at 10:00 AM ISM Non-Mfg Index, according to consensus will hold a very strong rate of 58.4 in April vs. the March reading at 58.8 as delivery times have been increasing due to capacity constraints and labor costs.  The remaining reports on the calendar, Consumer Comfort, Natural Gas, Fed Balance Sheet, Money Supply and Bond Announcement are unlikely to move the market today.

Today is also a big day on the Earnings Calendar with more than 400 companies expected to report.  Stay vigilant and keep checking reporting dates of companies you hold and have a plan to avoid painful earnings surprises.

Action Plan

In my 29 years of market experience, yesterday’s FOMC market reaction to unchanged interest rates ranks among the most boring.  When the bears did finally step in it was a slow and grinding decline with the DIA and SPY dipping toward a test Tuesday’s low.  The QQQ dipped but held more than 50% of Tuesday’s rally while the IWM pushed upward closing above its 50-Day-Average.  Overnight Futures were negative but currently are suggesting a flat open.

It’s interesting to note and concerning as earnings continue to come better than expected with no interest increases from the FOMC that the bulls have been unable to gain any traction.  The 200-Day-Average fast approaching once again the bulls had better get it together quickly, or we should expect the bears to make a run for the April lows and perhaps lower.  As of now, the VIX is not showing a sharp rise in fear but keep a close eye on it because a failure below the 200-day could easily open a floodgate of bearish sentiment.

Trade Wisely,

Doug