A Piling on of bad news.
A Piling on of bad news.
When the market starts to turn lower, it always seems to attract a piling on of bad news. Yesterday, after the close, the IMF lowered world growth estimates siting trade disruptions. As a result, Asian and European markets reacted lower, and consequently, the US Futures are suggesting another gap down punishing those that held overnight. The buy the dip crowd will likely feel some pain this morning.
Don’t rule out the possibility of a test of yesterdays but with any luck, the bulls will find the energy to hold a higher low and establish a safer entry point than just blindly buying the dip. Expect volatility to remain high with challenging price action that could include substantial whipsaws and head fakes. Be very careful and remember you don’t have to the trade every day to be a successful trader and remember cash is a position.
On the Calendar
The Tuesday Economic Calendar kicks off early with the NFIB Small Business Optimism Index at 6:00 AM Eastern. At 8:55 AM we will hear from the Redbook report, we have a Fed speaker at 10:00 AM, four Bill Auctions between 11:30 AM and 1:00 PM. Late this evening we have Fed speakers at 9:15 PM and 10:35 PM Eastern.
We have only four companies reporting earnings today. Before the market, we have AZZ & HELE with CNBKA & IDT reporting after the close of trading today.
Action Plan
Yesterday played out about as expected ending the day with hope as the Bulls came in chanting “buy the dip.” I truly dislike that phrase! It encourages irresponsibility and gambling as traders jump blindly into trades with no thought to the fact their action could be absolutely wrong! Those that blindly jumped yesterday before the close will obviously feel the error of their ways with the futures pointing to a gap down of more than 100 points this morning.
After the close yesterday, the IMF lowered world growth estimates siting trade disruptions. Emerging Markets which have been in a downtrend for most of the year will remain under pressure according to the IMF due to there weakening currency against the US Dollar. After the morning gap down expect some whippy price action and don’t rule out the possibility of a pullback to test yesterdays low. If tested, I think there is a high probability it will hold as support at least for the short-term. The very best scenario is if the Bull step in holding a higher low and a willingness to demonstrate follow-through buying. A pullback that holds a higher low and provides a lower risk entry? Where have I heard that before? Your choice, enter with a plan or blindly buy the dip.
Trade Wisely,
Doug
Traders face a rather unique technical picture this morning. The QQQ, & IWM have obviously suffered some significant technical damage that could take weeks to repair. At the same, time with the SPY holding onto its 50-day average and the DIA holding onto the support of its current uptrend a quick recovery would appear very doable. Such an imbalance among the indexes could make for some very challenging price action and contradictory signals.
Today could be a very interesting Bull and Bear battle. At this time the Bulls continue to hold the high ground with the DIA, SPY, and QQQ holding onto current trends. However, with the US Futures currently pointing to a gap down open this morning, the bears have a chance to produce a bearish Island Reversal pattern.
