Anything is possible.

With the market having risen so much so fast it’s easy to assume that the market is overbought and thus must go down.  As a result, traders will try to predict the roll over failing to consider the extreme bullishness of this rally and the huge number of earnings reports this week.  The fact is, Anything is Possible!  Good earnings reports could easily extend this bull run higher.  If they disappoint some violent moves lower are possible.

Yesterday the indexes left behind bearish patterns suggesting lower prices to come but the futures are pointing to a gap up open?  I expect this will likely be a very challenging market for next several days with lots of premarket gaps and intraday whipsaws possible.  Try to avoid predicting and attempting to apply your personal market bias and just follow price when it provides good entry signals. Also, keep in mind that successful trading does not require you to trade every day. Cash is a position that is often forgotten and underutilized.

On the Calendar

The Tuesday Economic Calendar kicks off at 9:45 AM Eastern with the PMI Composite Flash.  The October Composite Index expected to remain unchanged with a comfortably strong reading of 54.8.  Forecasters are expecting the manufacturing PMI to come up to 53.3 vs. 53.1.  The services PMI has been the leader with a 55.3 reading in September which is expected to pull back slightly to 55.2 for October.  FYI, PMI stands for Purchasing Managers’ Index.

There will lots of earnings news affecting the market today will about 190 companies reporting.  Just a few to take note of; MCD, CAT, LMT, GM, JBLU, BIIB, MMM, GLW, SHW, AMTD, LLY, PHM plus much more.  Make sure you are checking reporting date of companies you hold and those you are interested in buying.  Preparation is very important.

Action Plan

For the first time in several weeks, we saw a little profit taking in the market as the day wore on yesterday.  The DIA left behind a Dark Cloud Cover pattern while the SPY dropped in a full-on Bearish Engulfing Pattern.    The QQQ also printed a Bearish Engulfing, but it actually finished the day looking more like an Evening Star Pattern.  The IWM remained in its tight range consolidation but also printed an Evening Star type pattern.  With all these bearish patterns does not mean the market has to go down?  Nope!  Let’s keep in mind the sheer momentum of this rally and the fact that huge numbers of earnings reports are rolling out.  Anything and I mean ANYTHING, is possible!

Futures have been climbing all night and as of now suggest about a 50 point gap up in the Dow.  Possibly another short squeeze like last Thursday?  Your guess is as good as mine.  I will first manage current positions and but will plan to wait until after the morning rush before looking for new trades.

Trade Wisely,

Doug