Shock-waves

Yesterday I wrote that the market was looking for inspiration and the bears certainly found it during the CAT conference call. During the call, CAT pointed to the first quarter as the high water mark for the foreseeable future, and that sent shock-waves through the entire market.  Stocks that were enjoying nice bullish moves but quickly reversed as bearishness spread across most market sectors.

In yesterday’s note and morning prep video, I mentioned how important it was for the bulls to recapture the 50-day average or it would open the door for the bears.  That turned out to be correct, but I have to admit I was surprised by the violence of the move.  As a result, lower highs in the DIA, SPY and the QQQ are now confirmed raising the possibility of a retest of April lows.  Futures are pointing to a follow-through gap down this morning to drive home the point that the bears are back in control.  With so many earnings reports on the calendar, more shock-waves are certainly possible.

On the Calendar

A light Wednesday on the Economic Calendar with only one market-moving report.  At 10:30 AM Eastern the EIA Petroleum Status Report could be very important for the market today in the light of yesterdays sell-off.  Oil and oil stocks have enjoyed a strong bullish move due to the tension in Syria and the drop in supply numbers from the last status report.  Other than that we have a Mortgage Applications report at 7:00 AM and 2-bond auctions that finish the calendar day.

The Earnings Calendar nearly doubles from yesterday with 245 companies slated to report results.  Yesterday certainly proved that the market reaction to earnings reports can be violent and unpredictable.

Action Plan

With more than 600 earnings reports yet to come we must be prepared for a bumpy ride.  I mentioned yesterday to stay focused on price action and remain flexible, but holy cow yesterday’s bearish reaction to mostly good reports was shocking.  The major selling seems to have triggered during the CAT conference call when they referenced the first quarter as a high point and expect results to diminish looking forward.  Your guess is as good as mine as to how that statement translated into a broad-based selloff.

Dow futures are currently pointing to gap down by more than 100 points, and the VIX appears set to break its current downtrend.  Please keep in mind that as the market chews through all the coming reports that anything is possible.  While the move yesterday may have seemed irrational, please remember it can remain that way much longer you can stay liquid.  Set your bias aside stay focused on price action and follow it rather than fight it.  Expect the bumpy ride to continue with fast price actions and possible intraday whipsaws that could quickly reverse direction.

Trade Wisely,

Doug

Looking for inspiration.

Yesterday’s insipid price action seems to have finally given way to a little bullish inspiration this morning.  Futures are pointing to a substantial gap up but will need some follow-through buying if we are to recover the 50-day averages on the DIA, SPY and the QQQ.  Let’s hope earnings continue to inspire market confidence because we are at a critical decision point.

A failure to recover and hold the 50-day average could easily inspire a bear attack and confirm another lower high in the market.  However, if earnings continue to show pricing strength and the bulls get back over this important support, it could provide the bullish inspiration for another leg higher.  As of this moment, the bulls seem to have the upper hand, but with so many reports over the next few days, anything is possible.  Stay focused and buckle up it could be a wild and bumpy ride.

On the Calendar

The Tuesday Economic Calendar has three potential market-moving moving reports.  At 9:00 AM the Case-Shiller is expected to stay very strong even though consensus says it will pull back to 6.2% vs. 6.4% year-on-year.  The biggest number today is the New Home Sales report at 10:00 AM which forecasters see an improvement to 630,000 for March vs. the February reading of 610,000.   Also at 10:00 AM is the Consumer Confidence staying very strong but slipping slightly to 126.1 in April vs. 127.7 March print.  The Richmond Fed Mfg. Index and the State Street Investor Confidence also come out at 10:00 AM but are not expected to move the market.  We have 3-bond auctions this afternoon to complete the calendar day.

The Earnings Calendar currently shows 174 companies will report today.  Make sure you’re checking reporting dates on all stock you currently own and have a plan to deal with possible big price moves that can occur.

Action Plan

Yesterday saw a bit more choppy price action selling led by the tech sector as AAPL continues to suffer from bear attacks.  The DIA, SPY and QQQ’s are all below their 50-day averages with IWM still holding solidly above.  Currently, the Dow Futures are pointing to a solid gap up open of more than 100 points responding to positive earnings reports.  With so many big reports coming out over the course of this week expect and extra short of volatility, big gaps, and very fast price action.  As of now the bulls seem inspired by the earnings results but keep in mind with hundreds more over the next several days that their mood can quickly shift.  Stay on your toes, remain flexible and focus on price action.

Trade Wisely,

Doug

Earnings uncertainty.

Reading through weekend headlines there seems to be talking heads all over the spectrum.  One will almost giddy with bullishness and the next profession extremely bearishness.  Blah, blah, blah.  Although they all seem so very self-assured, as to they’re correctness the truth is they are as uncertain as we all are and just talking up their positions.  So what’s a retail trader to do with so much earnings uncertainty?

Remember that Price is King!  Focus on price action without bias, and directional clues will always present themselves is we patiently wait for them.  Easier said than done.  Especially for those caught up in the myth that they have the power to predict.  I gave up the idea that I could predict years ago and dedicated myself to simply following price.  It’s the institutions with their trillions of dollars that determine the direction of a stock.  As retail traders, we can hitch a ride if we stop predicting and learn to follow price action.  Supporting my family as a full-time trader for the last 13 years is a testament to that truth.

On the Calendar

On the Economic Calendar, this Monday the Chicago Fed National Activity Index kicks of the day at 8:30 AM Eastern and is not expected to move the market.  However, the PMI Composite Flash at 9:45 AM and Existing Home Sales at 10:00 AM could easily move the market.  First, the PMI expects a reading of 54.6 overall with manufacturing at 55.0 and services coming in at 54.5 according to consensus forecasts.  Secondly, the Housing Starts consensus expects a slight decline to 5.528 million annualized units vs. the 5.540 April reading.  After that, we have three bond events to wrap up the calendar day before noon on the east coast.

Today begins the heaviest week of earnings reports this season with just over 100 expected to report today.  Before the bell, we will hear from HAL, HAS, KMB & OPB to name a few.  After the bell, all eyes will be on GOOG, GOOGL, CNI & AABA.

Action Plan

With so many earnings reports this week, prepare for the possibility of big gaps, whipsaws and fast price action, particularly in the morning session.  Thus far, earnings by in large, have come in pretty strong and analysts seem to expect positive results to continue.  The big question is will it be enough to impress a nervous market with AAPL moving lower and 20-year treasuries moving up toward 3%.  Futures markets have been under pressure most of the night as markets sold off around the world due to interest rate worries.

Currently, the Dow futures are trying to recover from overnight lows but suggest a flat to slightly bearish open.  That, however, could quickly change as earnings reposts roll in this morning.  We should plan for considerable earnings volatility and fast price action around the open for the rest of the week.  Keep a very close eye on price action for directional clues.

Trade Wisely,

Doug

Big Decision lies Ahead

A big decision lies ahead for the market.  Currently, the indexes seem stuck between a rock and a hard place with moving averages trying to provide support and significant overhead price resistance trying to hold them down.  Currently the bulls the and bears seem somewhat equally balanced, and both sides appear to be waiting for inspiration.  With around 800 companies expected to report earnings next week, they may find the catalyst to needed to make a decision.

The big question is who will gain the upper hand, the bulls or the bears?  As we saw yesterday, just the hint that AAPL could miss on sales expectations sent the stock sharply lower.  It obviously wouldn’t take much to embolden the bears producing another lower high in the index.  However, if the earnings can continue to come in strong, it may provide the energy required to finally break-through resistance levels.  As short-term traders, we must prepare for both possibilities just in case that big decision occurs next week.

On the Calendar

We have a very light Friday Economic Calendar with no market-moving reports.  We have Fed speakers at 9:40 AM and 11:15 AM as well as the Baker-Hughes Rig Count at 1:00 PM to finish the day.

We also have a light day on the Earnings Calendar with only 25 companies expected to report.  Among them CFC, CLF, GE, and HON.

Action Plan

We saw a bit more selling then I was hoping for yesterday, but at the end of the day, the bulls did make an effort to defend price supports.  There was some significant pressure in the tech sector as AAPL sold off sharply on worries the company with fall considerably short of sales expectations.  The fear of slowing mobile demand put pressure on the entire tech sector yesterday with the QQQ testing it’s 50-day average.  The good news is the selling did not seem to ruffle market fears with the VIX showing very little interest in moving yesterday.  Currently, the Dow Futures are suggesting a relatively flat open but as earnings come out this morning that could certainly change quickly.

I still think the market wants to take a little rest around the 50-day averages as we head into the weekend.  Next week is a big week for earnings reports, and perhaps that will provide some directional inspiration.  Some strong reports could provide just enough energy to the bull to attack overhead resistance.  On the other have if earnings disappoint the bears could produce another lower high in the indexes and fail to hold the moving average support.  Although I hope the bulls will prevail, I know that I must also prepare in the event the bears gain the upper hand.  Consider that as you plan your risk heading into the weekend.

Trade Wisely,

Doug

Consolidation?

After the wild whips, we have experienced over the last 30 days of trading a couple of small range days in the market sure seems boring.  However, a little boring is just what the market needs to calm the nerves of traders and investors.  In our fast-paced market, a resting consolidation above the 50-day average would be very healthy in my humble opinion.  Consolidations in an index establish good support and resistance levels which in turn provide great stock entry or exit points for traders.  They allow stocks currently trending a stable environment to move with deliberate price action and provide great setups for traders and investors alike.

I have to admit a long consolidation during earnings season would be quite rare and probably unlikely but after a month of daily overnight reversals, even a day or two of rest can create a lot of healing.  So keep in mind a little boring price action can be a very, very positive thing if you’re a good technical analysis.

On the Calendar

We have a full Economic Calendar this Thursday, but only two reports are likely to move the market, and they both come out at 8:30 AM Eastern.  Weekly Jobless Claims according to consensus will decline by 3000 to 230,000 as labor demand remains consistent and strong.  The Philly Fed Business Outlook expects a slight pullback to a reading of 20.1 vs. the March number of 22.3 but remains near 50-year highs.  Reports not expected to move the market, 9:45 Consumer Comfort Index, 10:00 Leading indicators, 10:30 Natural Gas Report, 4:30 Fed Balance Sheet & Money Supply as well several bond events.  Also on the calendar, we have 3 Fed Speakers at 8:00 AM, 9:30 AM and 6:45 PM to round out the day.

On the Earnings Calendar, we have just over 100 companies reporting.  Make sure to check reporting dates of companies you hold or planning to buy.  Failure to do so can lead to very painful losses if you’re not prepared.

Action Plan

Yesterday was a nice resting day with indexes holding above 50-day moving averages but below important levels of resistance.  The VIX is also reflecting a calmer market with the fear index between the 15 and 16 handles.  Earnings which most often increases volatility has so far had the opposite effect as thus far reports have been strong, supporting current prices.

As I write this, the Dow Futures are pointing to a slightly low open but with so many earnings reports on the calendar that could easily change.  After such a large recovery it would not be out of the question to see the market rest (consolidate) or experience a pullback as traders take profits in preparation for the weekend ahead.  If we do pull back, it will be very important for the bulls to defend price supports and hold indexes around their 50-day averages.  Failure to do so could easily encourage the bears to push for another leg lower.  Continued strength in earnings reports will be very important to keep this rally alive.  There are a lot very good looking charts right now but be careful not chase by buying at or near price resistance levels.

Trade Wisley,

Doug