Too much of a good thing?

It’s always nice when we see the bulls step up and take charge breaking prices through resistance levels.  However, we can sometimes have too much of a good thing moving too far to fast.  I’m not suggesting that happened yesterday but, I do think its wise to consider the possibility.  That means I must stay focused and flexible being very careful not to by stocks near resistance levels and watching for signs of profit taking.

Let me be clear; the bulls are currently in control and the Futures suggest another bullish open is likely with the Dow gaping up more than 50 points.  I am only suggesting that you set your rose-colored glasses aside and stay focused.  Have a plan to protect your current profits and try to avoid chasing.  The fear of missing out is a powerful emotion, but if you chase a run already extended, you’re likely to experience a painful lesson.

On the Calendar

The JOLTS report is the only potential market-moving news on the Economic Calendar today.  At 10:00 AM forecasters expect a 6.700 million total jobs openings in June, showing incredible strength in labor demand.  For the first time in 20 years, there are more open positions than there are unemployed looking for work!  The NFIB Small Business Optimism Index @ 6:00 AM,  Readbood @ 8:55 AM and bond auctions at 11:30 AM & 1:00 PM to compleate the calendar day.

On the Earnings Calendar, PEP is one of the most notable of the 15 companies expected to report today.  With earnings season beginning soon make sure your checking when a company reports.  Failure to do so can be a costly mistake.

Action Plan

A big day for the bulls yesterday as buyers stepped in after the morning gap pushing all four of the major indexes higher.  Currently, the futures are pointing to a gap up open but be very careful not to chase.  In just 3-days the Dow has rallied more than 575 points, but T2122 is suggesting a reversal or consolidation could begin at any time.  Keep in mind after breaking above the 50-day average it’s pretty common for the Dow to test it as support.  I am certainly not predicting bearishness or that the market will absolutely reverse today.  I’m only pointing out the possibility.  If the bulls have enough juice, there is no reason they couldn’t extend this bull run.

Rather than chasing the run I will be more inclined to take some profits or use this bullishness to hedge positions by selling out of the money calls.  The QQQ and IWM will be very close to new record highs at the open, so it would not be out of the question to see a pause or even some profit taking.  Stay focused and flexible.

Trade Wisely.

Doug