The Bears create technical damage.

Sadly the price action concerns that I mentioned yesterday came to fruition as the Bears won the battle at resistance.  This time there was significant technical damage was created the in the index charts.  It may turn out to be nothing more than another round of market jitters but to ignore it is unwise.  The mantra for the last few years has been “Buy the Dip.”  However technical damage such as this normally takes at least several weeks to resolve.  We can now expect more volatility and challenging price action going forward.  Plan accordingly.

On the Calendar

We have a very light Economic Calendar this Friday.  At 10:00 AM Eastern we get the latest reading on Consumer Sentiment.  Although Consumer Confidence has been running near 20-year highs, Consumer Sentiment has been drifting lower.  The consensus is expecting a slight rebound to 94.0 vs. the last reading at 93.4.  Shortly after at 10:15 AM we have a Fed Speaker to round out the week.

On the Earnings Calendar we just over ten companies reporting today.  One of the biggest today will come from DE that reports before the bell.  Retailers EL and FL are also slated to report before the open today.  Although earnings season is winding down, it’s very important to make checking earnings report dates on the companies you hold and are thinking of buying.  Failing to do so can quickly damage an account.

Action Plan

Raising my caution level based on the price action served me well yesterday as the Bears won the first battle at resistance.  Yesterday the DIA broke and closed below the strong uptrend that it has enjoyed for several months.  Tremendous technical damage in the SPY was created yesterday breaking down below the prior low and closing well below the 50-day average.  The QQQ’s also suffered damage but managed to hold above the last low and the overall up trend closing at the 50-day average.  The poor IWM not only made a new low in its current downtrend but also sliced right through the 200-day average as if it was not even there.

With so much technical damage ahead of the weekend I will most likely stand aside today.  As you know, I always try to trade with the overall trend.  There are now sufficient clues that the up trend may falter, so I will begin putting together a watch-list of down trending stocks.  If you happen to be a long only trader, it is now time to curtail your trading activity.  Repairing technical damage will normally require several weeks of trading during which time volatility will likely be elevated making it very challenging even for the most experienced traders.  Please protect your accounts and realize you don’t have to trade every day to be a profitable trader.

Trade Wisely,

Doug