Not out of the woods just yet.

The bulls went to work on Friday providing very nice relief rally, but the markets are not out of the woods just yet.  The big move in AAPL fueled by the huge share purchase by Waren Buffett helped the QQQ’s break above it’s 50-day moving average.  However, all four of the major indexes are still in technical downtrends with significant price resistance levels above.  Although the Futures are pointing to a bullish open, keep in mind that after such a big 2-day rally some profit taking would not be out of the question.

The market has a lot to chew on this week with trade negotiations, nuclear deals, North Korea and about 1400 earnings reports.  Price volatility is likely to remain high, and big whipsaws or reversals are not out of the realm of possibility amidst the new spin cycle.  I’m rooting for the bulls to win this battle but I will also have a plan if bears regain control and everything starts moving south.

On the Calendar

A quiet day on Economic Calendar for a change.  There are three bond events, the TD Ameritrade IMX, Consumer Credit and three Fed speakers none of which are typically market-moving.

On the Earnings Calendar, there are 219 companies reporting quarterly results.  Today begins the last big week of this earnings season with around 1400 companies reporting.

Action Plan

Friday’s big beautiful bullish follow through was a very welcome site and was quite broad-based.  The tech sector turned out the be the biggest winner after the news that Warren Buffett when on another spending spree in AAPL shares.  That boost propelled the stock price to new record highs and due to its heavy weighting in QQQ pushed the ETF’s price above the 50-day average.

Unfortunately, the DIA and SPY remain under the 50-day average which means the bulls have a lot more work ahead of them.  Keep in mind the indexes still have a lot of overhead price resistance to deal with, and all four indexes are still in down trending patterns.  I wouldn’t expect the bears to give up easily and with the Dow, over 700 points off the low printed on Thursday, some profit taking is not out of the question.  The good news is that currently, the Dow Futures are suggesting a positive open.  The bad news is that the Dow will have to rally more than 230 points to test the 50-day averages and more than 550 points to break the lower high resistance.  Possible yes, but a tall order when you consider China Trade negotiations, a North Korean talks, and the Iranian Nuclear deal that could easily present stumbling blocks.

Trade Wisely,

Doug

Insipid

If you listen to the financial news, they blame yesterdays 300 point Dow selloff on Trade War jitters.  Okay,  if that’s the case what changed midday to cause the rally that recovered the entire selloff to close the day up 5 points?  If I were to define the price action in a single word, it would be Insipid, (no vigor).  The bulls are certainly lacking vigor unable to find buyers even on strong earnings reports.  And although we are in a current downtrend, the bears also seem lacking conviction allowing intraday whipsaws and reversals to occur almost daily.

The fact is after the unprecedented run up last year that overpriced the market this is a very normal process of trying to renegotiate prices.  Admittedly it’s extremely frustrating and very challenging to trade.  With the DIA and the SPY holding on to their 200-day averages yesterday I would love to say it now over but honestly I don’t think that true.  Although we may get a relief rally, I think the chances of difficult price action through the summer months is a high probability.  The good news is money can still be made with good technical analysis and selective stock picking.  The big intraday swings will eventually diminish, and the technical analysts will rule supreme.  There may be fewer trending stocks to choose from, but the quality of a trade is always more important than quantity.

On the Calendar

Only one market-moving report and a parade of Fed Speakers for this Friday’s Economic Calendar.  Before the bell at 8:30 AM Eastern we will get the very important Employment Situation report.  Consensus expects the April nonfarm payrolls grew by 191,000 in April with the unemployment rate slipping 1-tenth to 4.0 percent.  Average hourly earnings will tick up by only 0.2 percent with the yearly rate holding steady at 2.7 percent.  The forecast also expects manufacturing payrolls to post solid growth of 15,000.  The workweek is seen unchanged at 34.5 hours with the labor participation rate coming in flat at 62.9.  The oil rig count is at 1:00 PM and there are 7 Fed member speaking engagements throughout the day to close the calendar week.

On the Earnings Calendar, there are 95 companies expected to fess up to their results today.  Next will is another huge week of earnings with around 1400 expected reports to keep us on our toes.

Action Plan

No matter how if you were a bull or bear yesterday was frustrating because the market does not seem capable of holding on to a direction for an entire day.  The Dow dropped 300 points in the morning and then rallied about the same in the afternoon.  After all that movement it ended the day flat.  A frustrating whipsaw to be certain.

The good news – The DIA and the SPY ultimately held the 200-day-average and printed a Hammer Candle Pattern.  The bad news – A Hammer Candle Pattern requires follow-through, and currently, the futures are pointing to gap down open.  Couple that with the fact the bulls have not been able to find buyers even on great earnings reports it tough to believe in them enough at this point to toss caution to the wind and buy this low.  With the weekend coming and the news whipping up trade war fears it might be wise to exercise some caution.

Trade Wisely,

Doug

Rising Concern

Good earnings reports, no interest rate increase and the bulls don’t seem to care.  I don’t know about you that is becoming a serious concern to me.  With the DIA and the SPY once again dipping toward the 200-day-average I’m becoming increasingly concerned that bears could seek a retest of the April lows or possibly lower.  With the Futures pointing to a flat open and the bulls seemingly unable to respond to good reports traders should be on high alert.  A failure below the 200-day-average could embolden the bears to launch a full assault to find the next level of support which on the Dow could be more than 500 points lower.

I don’t intend to sound all bearish because it is still very possible for the bulls to launch a defense but they have better get to it pretty darn soon.  As always stay focused on price action for clues.  It’s certainly okay to hope for the best as long as you have a plan to protect your capital form the worst.  Personally, I think the market is near a critical decision point that could define the course of the next several months of trading.  Be prepared.

On the Calendar

We have a busy day on the Economic Calendar with five potential market-moving reports, three of which come out together at 8:30 AM Eastern.  According to consensus, the International Trade deficit is expected to decline to $49.9 billion in March vs. the February print of $57.6 billion.  The weekly Jobless Claims expect labor demand to remain strong but see claims increasing to 224K this week.  Productivity and Costs report expects to show a modest increase in first quarter production of 0.9% annualized but also see labor costs increasing 3.0%.

At 10:00 AM Factory Orders expects March durable goods orders to increase 1.3 while capital goods orders point to a slowing in business investment.  Also at 10:00 AM ISM Non-Mfg Index, according to consensus will hold a very strong rate of 58.4 in April vs. the March reading at 58.8 as delivery times have been increasing due to capacity constraints and labor costs.  The remaining reports on the calendar, Consumer Comfort, Natural Gas, Fed Balance Sheet, Money Supply and Bond Announcement are unlikely to move the market today.

Today is also a big day on the Earnings Calendar with more than 400 companies expected to report.  Stay vigilant and keep checking reporting dates of companies you hold and have a plan to avoid painful earnings surprises.

Action Plan

In my 29 years of market experience, yesterday’s FOMC market reaction to unchanged interest rates ranks among the most boring.  When the bears did finally step in it was a slow and grinding decline with the DIA and SPY dipping toward a test Tuesday’s low.  The QQQ dipped but held more than 50% of Tuesday’s rally while the IWM pushed upward closing above its 50-Day-Average.  Overnight Futures were negative but currently are suggesting a flat open.

It’s interesting to note and concerning as earnings continue to come better than expected with no interest increases from the FOMC that the bulls have been unable to gain any traction.  The 200-Day-Average fast approaching once again the bulls had better get it together quickly, or we should expect the bears to make a run for the April lows and perhaps lower.  As of now, the VIX is not showing a sharp rise in fear but keep a close eye on it because a failure below the 200-day could easily open a floodgate of bearish sentiment.

Trade Wisely,

Doug

The Humbling Market

The market has a way of humbling us all.  Yesterday I suggested we would likely see a big gap up or a big gap down as a result of AAPL earnings.  AAPL produced great earnings, sales, guidance and huge stock repurchase program after the bell yesterday.  The stock currently is gaping up 4% in the premarket and all-though the Dow Futures are pointing to a gap up open it’s not what I would call a big gap.  Although I still think I was right to be cautious ahead of such big focused event, it wrong of me to try and predict how the market would react.  A lesson that has repeatedly humbled me over the last 28 years of trading.

As always it’s the big institutions with their trillions of dollars that will decide the direction of a stock and the overall market.  Our job as retail traders is to identify the clues they leave behind in price action and follow their lead rather than trying to predict the future.  It’s far less stressful and much easier to build consistency into your trading when we remain humble and simply follow price action.

On the Calendar

Today’s Economic Calander have three potential market-moving reports.  First, the ADP Employment report at 8:15 AM Eastern is estimating the economy created 191,000 new jobs in April.  The unforecast Petroleum Statis report at 10:30 AM has shown the US supplies declining of late helping to support oil prices.  Then at 2:00 PM is the biggest event of the day occurs when the FOMC releases their decision on interest rates.  Other than that we have a couple of reports and three bond events all of which are not expected to move the market.

Another big day on the Earnings Calendar with nearly 350 companies reporting results.  Stay on your toes.

Action Plan

AAPL does it once again releasing considerable pressure in the tech sector topping estimates and selling more than 52 million iPhone’s last quarter.  They also announce an additional 100 billion in stock repurchases to put a cherry on top for investors.  The question is, with this giant weight lifted, can the tech sector stocks get moving in response to so many strong earnings reports?  Only time will tell.

Now we move on to the FOMC rate decision at 2:00 PM.  After the morning rush, it’s pretty normal for the market to become slow and choppy as we wait for their announcement.  Expect extremely fast price action on the release of the decision which often delivers several whipsaws before finally establishing a direction.  Currently, the Fed Funds Futures place about a 95% chance of a rate increase of 25 basis points today.  The big question is will the statement become move toward the hawkish side now that the Economic targets established by the FOMC have been achieved?

Trade Wisely,

Doug