Triple Point Gap

Another day, another triple point gap in the Dow as the markets try to come to grips with all the political uncertainty.  Having gaped down three days in a row and rallying each day off the lows has likely punished any traders the chased into short trades.  Today’s triple point gap up will certainly add insult to injury for those that stubbornly held on to those short positions.

With the market gaping higher this morning there will most certainly be traders that chase the gap up this morning by rushing into long positions.  Could they be just as wrong and equally punished at those that chased short?  The answer is obviously, Yes.  Chasing is a sign of an undisciplined trader trading emotionally.  It’s a bad habit that with cost you a lot of time and money.  I know because that was once me and it took a lot of hard work with the help of a trading coach to break me of this habit.  The solution, a good trading plan with rules that protected me from me and learning the discipline to follow them.  Don’t have a plan? Stop trading until you do.  Get some help and put your trading on a solid foundation.

On the Calendar

On the Economic Calendar, we have two potential market-moving reports today.  First, Existing Home Sales at 10:00 AM Eastern expect a bounce back in May to and annualized rate of 5.500 vs. 5.460 million in April.  Secondly, at 10:30 AM we get the latest reading on national oil supplies in the EIA Petroleum Status Report.  Other than that we have a group of Fed Speakers at 9:30 AM and a couple of reports, Current Account and Mortgage applications, none of which are expected to move the market.

On the Earnings Calendar, we have 19 companies reporting with MU being one of the most notable after the bell.

Action Plan

Three days in a row the market has gapped due to trade war fears yet each day the Bull have fought back rallying of the morning lows.  The Dow has taken the brunt of the selling and yesterday dipped below its 50-day average but managed to rally just enough to close back this important support level.  The SPY although closing lower on the day held support as the Bulls stepped up to defend the index lifting it well of the morning lows.  The QQQ briefly dipped below price support but came back nicely, and the IWM rallied to print a new record hi

Politically charged price action has been a challenge the last few trading days, and I would expect that to continue until we finally get some resolution on trade disputes.  This morning Dow Futures are looking higher and once again expected to gap more than 100 points sharing the pain with those that happened to chase into short trades.  Keep in mind; it’s equally wrong to chase long trades on a gap up open with so much uncertainty swirling around.  To reduce potential volatility look to stock holding solid trends that are primarily domestic companies as they are less affected in a trade war escalation.

Trade Wisley,

Doug