Unique Technical Picture

Traders face a rather unique technical picture this morning.  The QQQ, & IWM have obviously suffered some significant technical damage that could take weeks to repair.  At the same, time with the SPY holding onto its 50-day average and the DIA holding onto the support of its current uptrend a quick recovery would appear very doable.  Such an imbalance among the indexes could make for some very challenging price action and contradictory signals.

Both Asian and European saw more selling overnight, and the US Futures are pointing to a gap down open this morning.  However, with having tested important support levels on Friday, I would keep my eyes glued to price action looking for clues of at least a small bounce after the open.  Please, keep in mind that volatility could create significant whipsaws and fast price action not suitable for inexperienced traders.  Bottom picking is a very dangerous business and to be honest a very nasty habit.  Wait for good price action clues and always have a quick exit plan if you’re wrong.  If you try to fight the market as a retail trader, plan to watch your money disappear.

On the Calendar

A very light day to begin the 2^nd week of October on the Economic Calendar.  There is only one report the entire day, and the TD Ameritrade IMX number is not a market-moving number.

On the Earnings Calendar, we have only six companies reporting quarterly results.  Unless you happen to be holding one of these companies, there is nothing particularly notable about those reporting today.

Action Plan

Markets appear to have had a pretty rough night with Asian markets closing down across the board.  European are also currently under pressure this morning with the FTSE, DAX, and CAC continue to sell off.  Consequently, US Futures are also under pressure selling pressure this morning with the Dow currently suggesting a gap down of more than 75 points.  On Friday the SPY closed very near its 50-day average while the QQQ sliced through the 50 finally finding some price support around 178.  Although the DIA experienced selling it’s the only index that found the support of its uptrend holding above the 20-day average.  The poor IWM is the complete opposite having plunged all the way down to it’s 200-day average a creating significant technical damage.

The sharp spike in the VIX suggests a higher level of volatility could be with us for a while with also means higher prices for options contracts.  However, with T2122 in the bullish reversal zone, I would watch for the possibility of a bounce after the opening gap down.  Remember the clues will always be in the price action.  Don’t anticipate a bounce, wait for proof that sellers are out of energy and buyers are stepping up to take over.  We could simply consolidate near the lows before resuming the sell-off so be patient an watch for clues.  Also, the possibility of quick intraday whipsaws, head fakes, and fast price action would make the day very challenging.

Trade Wisely,

Doug