Beware Price Gaps Below Resistance.

It is always wise to beware price gaps.  When they occur below resistance levels after a significant selloff, I want to focus on the price action and avoid the emotion a gap can create.  The fact that the market closes early today and will likely lack volume makes we want to avoid it all together.  Do as you like, but as for me, I will be standing aside.  NYSE closes at 1 PM today, and Tuesday the market is closed so plan accordingly.

On the Calendar

The Economic Calendar begins the first trading day in July with the PMI Manufacturing numbers at 9:45 AM Eastern.  Last month PMI slowed to 52.1, and consensus suggests it will remain steady for June.  At 10:00 AM we get the most important report of the day, the ISM Manufacturing Index.  Earlier this year ISM peaked at 57, but forecasters are calling for a 55.1 print in June which is a slight improvement over May.  Construction Spending is also at 10:00 AM today which is expected to show improvement with a 0.5% gain.

There are nine companies expected to report earnings today.  I don’t expect any of them to be market-moving reports.  Keep in mind that today marks the first trading day of the 3^rd quarter.  That means we will soon be right back into earnings season.  Make it a habit of checking for earnings reports on every position you are in and every new trade you are considering.  Failing to do so can be a costly mistake.

Action Plan

Friday saw nice relief rally, but by the end of the trading day much it was given back with a quick move lower.  As expected, most of the day saw very choppy price action.  Futures are currently pointing sharply higher suggesting a gap of nearly 70 points at the moment.  Let’s keep in mind that today is only a partial day of trading.  The big gap open will most likely meet with light volume trading after the morning rush.  It would also be wise to notice that all the major indexes will still be below resistance levels.

As for me, I plan to do no trading at all.  If I were planning to add risk today, there is not a chance that I would chase the gap up open.  I would give it at least 30 minutes trading and make sure that real buyers step in to support the gap.  Remember gap up opens into resistance levels are subject to whipsaw price action.  Chase in and you could find yourself buying at the highest price of the day entire day.

Trade Wisely,

Doug