Sweet Relief

What a great relief to see the bulls stepping up the plate once again.  Just when it seems safe to jump in both feet keep in mind just how much the market has rallied.  The Dow is now up now more than 1400 points since it’s low on April 2^nd and is approaching a significant resistance level.  Strong earnings reports can and may continue to spur the bulls higher, but it would be wise to prepare for the possibility pullback or consolidation.

A major problem that plagued me years was failing to give proper respect to price resistance.  I would wait for so much confirmation that a stock or index was moving up that I was normally buying at or near price resistance.  As a result, I would often get punished wasting not only capital but also crushing my trading confidence.  If you currently suffer the same problem the fix is easy.  Learn to buy when prices are reacting to price supports.  Your win/loss ratio should improve and when you do get stopped our losses will typically be smaller.

On the Calendar

We have two potentially market-moving reports this Wednesday on the Economic Calendar.  Today Fed member, William Dudley, speaks at 8:30 AM and at 3:15 PM today.  The EIA Petroleum Status report is at 10:30 AM.  They don’t forward forecast petroleum supplies, but the last reading showed a slight increase in supplies.  The Beige Book comes out at 2:00 PM which is used by the FOMC as part of the decision making process on interest rates.  Any indication of inflationary pressures rising could cause markets to react negatively.  Winding up the calendar day at 4:15 PM is another Fed Speaker, Randal Queries.

The Earnings Calendar is picking up speed with 75 companies expected to fess up to their results today.  Before the bell, we will hear from MS, ABT, and USB.  After the bell AA, KMI, URI, and AXP are few of those slated to report.

Action Plan

After the morning gap, the indexes continued slowly pushing higher putting pressure on those holding short positions.  The DIA slipped into an intraday consolidation while QQQ powered higher inspired by strong earnings reports.  The good news is that all four of the major indexes closed above their 50-day averages and the current futures are showing some follow-through bullishness at the open today.

As good as that is there are still many challenges of resistance overhead, and we are starting to show a few signals of stress having moved so far so fast.  I would not be surprised to see a little resting consolidation or profit taking pullback to begin at any time.  Please understand I’m not suggesting bearishness, in fact, strong earnings could continue to inspire the bulls to keep pushing upward.  As always choose stocks that are reacting to price supports and tends and be cautious of those at or near price resistance levels.

Trade Wisely,

Doug

Earnings

Earnings seem to be just what the doctor ordered as the bulls step up and show a willingness to follow-through.  With significant technical damage to repair in the index charts, let’s hope a good earnings reports can continue to inspire the bulls to break through resistance levels.  With all the political turmoil swirling about we must remain on our toes and have plans to manage the risk.  The VIX is showing signs of improvement, and with the reduction of daily reversals, a swing traders edge is also returning.

Keep in mind, repairing the technical damage in the index charts can be a challenging and choppy process.  However, if volatility remains in check, then stock pickers with good technical skills will once again have the upper hand.  Go Bulls!

On the Calendar

Today the Economic Calendar has two market-moving this Tuesday.  First at 8:30 AM Eastern, Housing Starts according to forecasters will post solid gains in March of 1.264 million annualized starts while permits slip slightly to 1.315 million.  Secondly at 9:15 AM the Industrial Production is expected to report a 0.4% gain overall with a 0.2% increase in capacity utilization climbing to 78%.  The Fed has a lot to say today with four speakers at 9:15, 10:00, 11:00 and 1:40.  The Redbook report at 8:55 and bond auction at 11:30 are very unlikely to move the market.

On the Earnings Calendar, we have a busy day of important reports with GS, JNJ, PGR, and UNH reporting before the bell.  After the bell, we will hear from the likes of CSX, IBM, ISRG, and UAL.  In total there are 50 companies expected to report results today.

Action Plan

I had mentioned a couple of weeks ago that earnings would likely be the best chance of settling market nerves and allow the market to pick a direction.  So far that seems to have been correct with market finally showing signs of follow through without the daily flip-flop.  Unfortunately, earnings commonly produce big opening gaps still making for a challenging trading environment, but the VIX is finally calming slightly.

Good earnings reports are just what the market needs right now as the indexes challenge the resistance of their 50-day moving averages and price action resistance levels.  The Dow Futures currently indicate a gap up of nearly 150 points at the open moving the index back above the 50 SMA.  The SPY and the QQQ will also attempt to breach this important average at the open today.  Continue to expect fast price action and keep in mind the bears are not likely to give up easily, and the risk of intraday whipsaws still exist.  With geopolitical issues continuing swirl overhead we can’t just throw caution to the wind.  Have a well thought out plan for every trade.

Trade Wisely,

Doug

Whipsaw

Once again the market is set for a pre-market whipsaw of more than 100 Dow points.  Traders that entered short positions based on the bearish patterns below the 50-day average in the DIA, SPY, and QQQ may be forced to by to cover if the bulls remain strong after the open.  Overnight whipsaws are incredibly difficult to trade unless you’re capable of picking a direction, placing your bet, closing your eyes and letting it ride.  Tough to do and consequently times like this can chop a traders account to pieces.

One way to handle such volatility is to plan trades of a smaller size to limit your risk.  Placing a trade of half or even a quarter of your normal trade size can help a trader better deal with the whipsaws and fast price action.  If the trade does move in your favor, you can always add to the position.  If you find yourself trapped by an overnight reversal, you may still have to take a loss, but small losses are much easier to recover from and not as psychologically damaging.  Remember trading is not a sprint, it’s a marathon.

On the Calendar

The Economic Calendar hits the ground running this Monday with four potential market-moving reports.  The most important report, Retail Sales, is released at 8:30 AM Eastern which forecasters expect a 0.4% increase in the headline number with ex-auto sells less robust at 0.2%.  Also at 8:30 AM is the Empire Stae Mfg Survey that consensus suggests will remain very strong with a reading of 18.2 in April while declining slightly.

At 10:00 AM Business Inventories are expected to show a 0.6% rise in February inventories remaining very strong.  Also at 10:00 AM the Housing Market Index is expected to show home-builder confidence remains steady with a 70 print in April according to forecasters.  Then at 4:00 PM, Treasury International Capital reports the demand for long-term U.S. Securities, but there is no forward-looking forecast for this report.  We have one Fed Speaker at 1:15 PM and three bond events to round out this busy calendar day.

On the Earnings Calendar, there are 45 companies reporting today with SCHW and JBHT before the bell, but all eyes will likely focus on the first to of the FANG stocks to report, NFLX after the bell.

Action Plan

I have to admit to being a little disappointed that the strong earnings reports of C, JPM, and WFC were not enough to dissuade the bears from selling into the close on Friday.  The potential of a Syrian military response by the U.S. proved stronger than these big banks beating on both the top and bottom line.  The bearish engulfing candle patterns under the 50-day average certainly are a concern and if price action follows-through to the downside it would confirm a lower high in the current downtrend.  However, the current futures are pointing to substantial gap up at the open as the bulls try to prevent follow-through selling.

With the Dow Futures suggesting another overnight reversal of around 150 points, price volatility remains high and difficult to trade.  Traders currently holding positions should expect big price swings and whipsaws to continue as we challenge the strength of index resistance levels.  Slipping into a wide range consolidation is certainly possible around the 50-day average.  Plan your risk carefully.

Trade Wisely,

Doug