Whipsaws

Over the last five days of trading, we have seen the market open with significant gaps follow by whipsaws.  Twice the market gaped down only to find buyers and whip back up.  There were also three days when the market gaped up only to end the day lower as seller whipped prices back down.  So after 100’s of points of daily travel in Dow whats the result?  The Dow is up a whopping 59 points!

So the fact that the Dow Futures are pointing to another gap of about 150 points this morning ahead of tariff increases and the FOMC minutes release should we be rushing to enter trades?  Fool me once shame on you, fool me twice shame on me.  Don’t allow the fear of missing out to control your trading decision, wait for better price action or wave goodbye to your capital as the market continues to chop up accounts.

On the Calendar

A busy day on the Thursday Economic Calendar.  Potential market-moving reports begin at 8:15 AM with the ADP Employment Report which the consensus expects 190,000 jobs created in June but keep in mind ADP’s accuracy is very hit and miss.  Weekly Jobless claims come out at 8:30 AM and forecasters expect a decline to 223,000 vs. last weeks reading of 227,000.  The unforecast EIA Petroleum Status report is at 11:00 AM and last but not least is the release of the FOMC minutes at 2:00 PM.    Non-market moving reports include Mortgage Applications @ 7:00 AM, Challenger Job-Cut Report @ 7:30, Consumer Confort Index &  PMI Services Index @ 9:45, five Bond Announcements, Fed Balance Sheet & Money Supply @ 4:30 PM.

On the Earnings Calendar, we have only six companies reporting today that are unlikely to move the market.

Action Plan

It’s interesting that the US Futures are positive today in light of the fact that Asian markets were moved lower during the night with new tariffs set to begin tomorrow.  Of course, with have seen big daily morning gaps the last several days that have proved punishing for those that chased the open.  Will today be different?  Only time will tell, but it would also be wise to remember that the FOMC minutes will be out at 2:00 PM today and volume could easily be anemic with traders extending their holiday vacations.  It would not be at all uncommon for the market to become light and choppy as we wait for the FOMC minutes.

I intend to remain cautious particularly during the morning rush.  Remember whipsaws are possible just like we have seen the last five trading days in a row.  Also, keep in mind that the Big Employment Situation number will be out Friday before the market open, so another big morning gap is possible.  The big question is in which direction?

Trade Wisely,

Doug

Difficult Decisions.

The open of the market today is presenting traders difficult decisions.  Currently, the Dow Futures suggest around a 100 point gap up at the open.  Will you dive in head first on a day the market closes early ahead of a holiday shutdown?  Or, will you remain cautious and risk missing out on a possible market bottom?  Certainly a difficult decision amid all the political uncertainty with the new tariffs taking effect on July 6^th.

Trading is a marathon, not a sprint and I know if the market begins a rally there will more than enough opportunity for me to make money without having to chase a gap ahead of a holiday.  We could see a bullish follow through on Thursday when trading resumes, but there is no question in my mind that it could just as easily reverse producing a bearish open on Thursday.  As for my decision; Instead of adding risk I will be looking to take advantage of the morning gap by taking profits and reducing my market exposure ahead of the holiday shutdown.  Your difficult decision awaits, plan your choice carefully.

On the Calendar

Ther are two potential market-moving reports on this short day of trading.  The Motor Vehicle Sales report according to consensus will reach a 17.0 million annualized rate in June vs. the 16.9 million units in May.  At 10:00 AM Eastern Factory Orders which includes data on non-durable goods expects to come in unchanged.  The Redbook comes out at 8:55 AM but is not expected to have any price impacts on the market.  Keep in mind the market will close early at 1:00 PM Eastern time in observance of Independence Day and will be closed all day Wednesday.

There are only six earnings reports today and looking over the list I would say none of the reports are likely to move the market.

Action Plan

It was nice to see the Bulls battle their way back after gaping sharply lower at the open.  The good news is that all the major indexes held just slightly above prior lows.  The bad news is that even with the rally all the indexes lacked the energy to break above current downtrends.  The trend of big morning gaps looks to continue this morning with Dow Futures suggesting a gap up around 100 points.  Keep in mind even with today’s morning gap the Dow will still be about 200 points below its 50-day average.  The SPY looks to recover it’s 50-day average at the open while the QQQ and IWM successfully held above this key average.

As you know, I’m always cautious about large gap opens and the fact this one is occurring just before a major holiday and a short session only increases my level of caution.  Remember volume is very likely to drop significantly after the morning rush.  Rather than adding new risk, I would be more inclined to take advantage of the morning bullishness to take some profits ahead of the holiday shutdown.  I wish you all a fantastic holiday as we celebrate our 242^nd year of Independence.

Trade wisely,

Doug

Trading or gambling?

With all the political uncertainty and facing a mid-week holiday are we trading or gambling.  We have had almost two weeks of significant daily gaps and whipsaws, and that trend looks continue this morning with about a 150 point gap down in the Dow.  Unless you believe one of the countries involved in this tariff standoff throws up there hands and says, ‘you win, we give up.”, then it would seem that the erratic price action will continue to elevate risk.

How much of your capital are you willing to risk when there is little to edge?  I know standing aside is a very hard thing to do but if your capital continues to disappear in this environment.  However, if you continue doing the same thing over and over why should you expect a different result?  So I ask again, are we trading or gambling?

On the Calendar

We start this Holiday week with three potential market-moving reports on the Economic Calendar.  At 9:45 AM Eastern the PMI Manufacturing Index seems may be losing a bit of momentum with a June reading of 54.6 with consensus pointing to tariff effects.  The ISM Mfg. Index at 10:00 AM expects a slight decline to 58.3 in June vs. the 58.7 reading in May according to forecasters.  Also at 10:00 AM consensus expects an increase of 1.8 in April with the overall number to be GDP positive up 0.6 percent in May.  After that, we have three bond auctions to finish up the calendar day.

Action Plan

With new tariffs kicking in and the new threat of 300 billion more out of Europe my glad I exercised caution an avoided adding new risk ahead of the weekend.  The uncertainty created by daily morning gaps has created a dangerous environment for swing and position traders.  Add volatility to an already short holiday week where volumes will likely be light the risks for swing traders only grows.  The fact is the current market enjoinment is more akin to gambling that it is to trading.

Currently, the Dow Futures indicate a gap down of nearly 150 points wiping out all of the Friday gains.  It would seem a retest of the 6/28 lows is possible, maybe even lower if that doesn’t hold as support.  With uncertainty so high I I’m already light in my account, and I think it highly unlikely that will change over the course of this entire week.  Considering the holiday and the large daily gaps, I have no edge.  If I wanted to gamble, I would go to Vegas where they would at least bring me free drinks for giving up my edge.

Trade Wisely,

Doug

Window Dressing?

With futures pointing to a positive open and the possibility of a little end of quarter window dressing remember to consider the weekend uncertainty and coming holiday as you plan your day.  Volume could quickly decline, and price action may become choppy for the next few trading days.   Remember the market closes Tuesday at 1:00 PM Eastern and is closed Wednesday to celebrate the 4^th of the July.

Remember to use caution and watch for the possibility of whipsaw price action with the morning gap.  Carefully consider how much risk you want to carry into the weekend with the trade war uncertainty and a mid-week holiday directly after.  Even the best of the entry signals may find it difficult to find the energy to follow-through.

On the Calendar

We kick off the Friday Economic Calendar at 8:30 AM Eastern with the Personal Income and Outlays report.  Consensus expects a personal income & consumer spending increase of 0.4 percent in May.  The overall price index expects a year-on-year rate of 2.2 percent.  At 9:45 AM, the Chicago PMI, expects a strong but slightly lower June consensus at 60.1 vs. the 62.7 May reading due to rising costs and trouble filling open jobs.   The Consumer Sentiment number will remain very strong according to consensus which a June reading of 99.0.  To wrap up the calendar month, we have the Baker-Hughes Rig Count at 1:00 PM which is unlikely to move the market.

On the Earnings Calendar, we have 11 companies expected to report results today.  The most notable of the day is STZ which report before the open bell.

Action Plan

I read a report this morning that said the Futures are rising today due to easing trade tensions.  That seems unlikely to me because I’ve seen no change in the pressure applied by the White House.  Today is the last trading day of June, and the last day of the 2^nd quarter, so the futures rally and be attributed to the end of quarter window dressing.  Whatever the reason Dow Futures are currently pointing to gap up around 100 points.  As you plan for the day, remember the rules about chasing a morning gap and watch the possibility of a whipsaw.

Also, keep in mind that today is a getaway day leading into the July 4^th holiday.  I would not be surprised to see volume begin to fall off quickly and choppy price action to begin until we get past the 4^th.  It would also be wise to think about how much risk you want to carry into the weekend.

Trade Wisely,

Doug