Stalemate at Resistance

As the Bull worked to push the markets higher yesterday, the Bears battled them to a stalemate at price resistance.  Unfortunately, they left behind the potential topping candle patterns on the DIA, SPY, and QQQ.  At resistance, the Shooting Star Candle Pattern should give a little pause and raise our caution levels.  However, a single candle pattern is only a very short-term clue.  To increase the importance of a shooting star pattern, it must follow-through with bearish price action.

As a result, there is reason for traders to approach the market this morning with a little caution but no need to run for the hills in panic.  After such a strong rally where the Dow has gained nearly 850 points from last Wednesday’s low a simple consolidation at the highs is certainly possible.  Give price resistance respect and stay focused on price action.  If you can lock in some profits to reduce risk and be careful not to load up on new risk because a stalemate can shift directions very quickly.

On the Calendar

We have had it easy so far this week, but today on the Economic Calendar we have three potential market-moving reports.  At 10:00 AM forecasters expect Existing Home Sales to increase to 5.420 million in July.  Then at 10:30 AM we will get the result of the unforecast EIA Petroleum Status Report.  Last but not least the FOMC will release their minutes from their last meeting at 2:00 PM.

On the Earnings Calendar, we have a slightly lighter day, but some name reports that could move the market.  Before the bell LOW, TGT & MOMO report with JBSS, HTHT & LB fessing up after today’s market close.

Action Plan

The Bulls managed to rally yesterday setting a new record high close for IWM.  The SPY ran up and printed a new record but unfortunately was unable to hold on to it by the closing bell.  Shooting star candle patterns were left behind in the DIA, SPY, and QQQ as Bears worked to defend resistance levels.  Futures which were down more than 100 points during the evening hours have recovered substantially now indicating a flat open.

I think it would be wise to exercise a little caution this morning with the battle at resistance in full swing.  Keep in mind with the FOMC minutes released at 2:00 PM we could see the light choppy price after the morning rush as the market waits.

Trade Wisely,

Doug