Adapt to the change.

Up 400 points Monday and reverse it on Tuesday is the very definition of extreme volatility in my opinion.  Consequently, we must adapt to the change.  I suggested that the February selloff would require weeks if not months to resolve itself before we could get back to normal activity.  Traders often fail to recognize and adapt when the market suddenly changes character.  We try to trade at the same level of intensity as when volatility was low, and the market was trending.  Everything that had been working so well is now handing out losses and frustration.  Long story short, adapt your trading to the new normal or continue to have you account chopped up and your confidence destroyed.  You’re the boss; the responsibility rests with you.

On the Calendar

Wednesday is another big day on the Economic Calendar.  It gets going at 8:30 AM Eastern with the latest reading on GDP which consensus suggests will decline slightly by 0.15 to 2.5% annualized.  Consumer spending is expected to slip 0.1 percent to 3.7% with the GDP price index coming in at a 2.4% rate.  At 9:45 is the Chicago PMI lead by a 6-year high for employment is expected to come in with a solid 65.0 reading.  Pending Home Sales at 10:00 AM is expected to see a moderate gain of 0.3 percent today according to consensus.  To round out the calendar for today, the EIA Petroleum Status Report at 10:30 AM is not forecast but had a nice decline in supplies bolstering oil stocks.

On the Earnings Calendar, we are expecting more than 190 reports today.  I know this season seems to be dragging out forever but remain vigilant checking reporting dates and preparing a plan to deal with them professionally.

Action Plan

Yesterday I suggested preparing for the potential for a bumpy day and sadly that turned out to be correct.  Our new Fed Chairman said the Economy is improving but suggested the possibility of adding one more rate increase is possible if the improvement continues.  As a result, the Market reversed Monday’s nice bullish rally leaving behind some nasty looking bearish engulfing patterns.  The VIX, in fact, did bounce off of the 50-day average and price support that I pointed out as possible yesterday.

A bearish engulfing suggests a lower low print is likely today however with the indexes all above the 50-day average it’s entirely possible they could soon find some support at least temporarily.  Currently, futures are pointing to flat to slightly bearish open.  I see that as a very good sign because we could have easily been staring at a large gap down at the open today.  I’m expecting choppy price action today as the bulls and bears battle for control around the 50-day average.  Remember with volatility, so high anything is possible.

Trade Wisely,

Doug