With a December rate increase and the two more expected next year, Jerome Powell is officially The Grinch who Stole Christmas.  Another wild day of price action with the Dow swinging nearly 900 points for the high to low.  Futures during the night were also very volatile falling an additional 200 points before bouncing and now suggesting a modestly higher open today.  Sadly with such wild price action, we can’t rule out the possibility that sometime during the day a test of the overnight low.

In the very short-term,we appear to be in an oversold condition, and a relief rally of sorts could begin at any time.  Unfortunately, with so much technical damage, extreme volatility and the holiday’s just around the corner any reaction higher could bring in more risk off sellers.  Keep in mind as the holiday’s draw near volumes are likely to decline as traders take time off to celebrate.

On the Calendar

On the Earnings Calendar, we have 34 companies reporting earnings.  Noteworthy Earnings Reports: CAN, BB, CAG, NKE, WBA

Action Plan

The Good: Indexes bounced slightly before the close at lower support levels. The VIX suggests fear is high but surprisingly held at price resistance.  T2122 indicates we are in the bounce zone and futures are suggesting a modestly higher open.  Last but not least Jerome Powell expects a strong economy in 2019.

The Bad: The indexes broke major support levels dropping sharply and quickly to test lower levels.  All four indexes have now entered the death cross with the DIA yesterday joining the other three adding to the technical damage.

The Ugly: With nearly a 900 point swing from high to low yesterday volatility remains very high.  With that in mind, we should not rule out the possibility of testing the overnight futures lows at some point during the day which is more than 200 points lower.  It looks like Congress is kicking the can down the road to February before making a decision on the budget which means the political uncertainty is likely to continue to plague the markets into next year.

As we head into the weekend, consider the risk carefully and know that anything is possible.

Trade Wisely,

Doug

The question of the day, What will the FOMC decide at 2:00 PM ET time today?  The world is watching, and pressure continues to mount as the WSJ the president and even Cramer have chimed in that the Fed should not raise rates.  However,the Fed Funds Futures suggest that there is better than a 70% chance that the FOMC will stick to its plans increasing the rate by 25 basis points.  Then there is the question of the FOMC forecast? Will  they continue with their aggressively hawkish stance or will they soften their outlook with a more dovish look forward.

As a trader, the truth is it really doesn’t matter what the Fed does or doesn’t do.  What matters is how the market responds to their decision and how we as traders react the price action. Currently, the Dow Futures indicate a substantial gap up of nearly 200 points.  We should expect substantial volatility and watch for possible full whipsaw reveals as we wait for the FOMC decision.  After the decision expect tremendously violent price swings, the market reacts all the way through the Chairman’s press conference.  Buckle up it could be a very bumpy ride!

On the Calendar

On the Earnings Calendar,we have 23 companies reporting earning stoday.  Among those reporting are GIS, PAYX, PIR, RAD, WGO as some of the most notable.

Action Plan

A budget deal in Italy,  some improvement in US budget negotiations and a possibly more accommodating FOMC is lifting the mood of US Futures this morning.  As I write this futures are suggesting a triple point gap up at the open.  The question is will the Bull be able to hold and defend the gap as we wait for the FOMC decision at 2:00 PM ET or will we continue whipsaw?  We should expect a volatile day and if you decide to trade plan to be very nimble and a substantial tolerance to risk.

Fed fund futures indicate better than a 70% chance that the FOMC will follow-through on their plans to raise interest rates by 25 basis points. If they do, does mean the market will necessarily fall?  No.  However, it will require to Fed to sound much more dovish in their forecast.  With the current state of the market, there is, of course, tremendous anticipation surrounding this event.  Expect extreme price volatility after the release the may reverse directions several times all the way through the chairman’s press conference.

Trade wisely,

Doug

A morning gap down that whipsawed into the green only to be whipsawed once again to new lows is quickly approaching critical weekly index supports.  If they fail to hold this selloff could get much worse very quickly.  All eyes are on the FOMC and Jerome Powell,wondering if they will stick to their aggressive rate increase stance or if recent events will make them reconsider.  If they raise, I suspect the weekly lows will fail.  Should they begin to talk more dovish, the market could substantially rally. 

Are you willing to gamble on that decision or will you stand aside to protect your capital?  Every day I hear from struggling traders searching for answers as they watch their accounts chopped to pieces and suffering huge losses trying to trade the extreme volatility.  If you find yourself consistently losing money then stop trading!  You’re the boss so make the decision to protect your capital and wait for the market to stabilize.  Cash is a position!  Better days will eventually return, but if you lose all your capital trying to fight the market, you won’t be here to take advantage of it. 

On the Calendar

On the Earnings Calendar, we have 23 companies reporting today.  Notable today is FDX, MU, DRI, FDS, JBL, SCS reports.

Action Plan

In yesterdays note I suggested the possibility of a bounce. After the morning gap and some follow-through selling, we did get a bounce.  Unfortunately,it lasted for only a couple of hours recovering the morning losses then failing at Friday’s resistance lows creating a double intraday whipsaw.  When you look at the index charts its tough to anything but gloom with the financial and political news reinforcing that sentiment.   Fear of the unknown is a powerful tool of the bears that have chased away any notion of a Santa rally this year.

As we rapidly approach weekly index supports the market is trying to send a strong signal to the FOMC and Jerome Powell to take a less aggressive approach to interest rate increases.  Although it’s not the job of the FOMC to protect the market, they certainly played a part in this selloff.  They have signaled a December rate increase is likely, but hopefully, they have received the message of the market and will reconsider. After that, we have the possible closure of the Federal government on Saturday if the Congress and President can’t agree on a budget.  Be very careful and remember that cash is a position!

Trade Wisely,

Doug

The market hates uncertainty and we this week we have an extra dose of political uncertainty to weigh on the mind of the market.  While we watch and wait for new on China/US Trade negotiations, we have the FOMC rate decision and forecasts on Wednesday and the obvious tension that it creates as the market waits for the decision.  If that’s not enough drama, we face the possibility of a government shut down on Friday if Congress and the Whitehouse can’t agree on the budget.  The hanging point is the border wall so expect an none stop barrage of political spin for the market to chew on this week.

As I write this, the US Futures are pointing to a modest gap down at the open.  It seems likely that the indexes will test lower supports but don’t rule out the possibility of a short-term oversold bounce to test the overnight futures highs.  Although volatility remains high, there is a possibility of light and choppy price action as the market tests support levels and waits for the FOMC decision.  As always maintain your discipline and say focused on price action an remember the next reversal may be just one news report away as the political uncertainty continues.

On the Calendar

We have 28 companies stepping up to report earnings this morning.  Make sure to keep up your due diligence as 2018 reports continue to wind down.

Action Plan

The Friday selling was disappointing but not all that shocking considering the political uncertainty that continues to swirl.  On Wednesday, the market faces the question,will they are will they not decide to increase interest rates as originally expected?  And then what do they see in the interest rate future with their FOMC Forecasts?  If that’s not enough drama then keep in mind, the government could shut down on Friday unless the Congress and President agree on a new budget let alone the ongoing trade negotiations.

During the evening Futures were at one point slightly higher as the Asian indexes closed mixed but mostly higher.  Unfortunately, European markets are all modestly lower this morning, and the US Futures are currently looking fora modestly lower open this morning,  A test of lower supports seems very likely but don’t rule out the possibility of a bounce with T2122 indicating a short-term oversold condition.  As the FOMC decision approaches to keep in mind that trading could become light and choppy as the market waits for the decision.  As always stay disciplined and focused on price action.

Trade Wisely,

Doug