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

AAPL in focus.

There is an old saying,” with great power comes great responsibility.”  Not many companies ever wield the power that the tech behemoth AAPL.  So with the overall market struggling to find its footing, I guess it’s fitting that the AAPL earnings report could be responsible for reversing or confirming market direction.  Suppliers of this tech giant have raised speculation that orders of chips and displays have declined by as much as 50% begging the question, will AAPL miss earnings estimates?  If the company reports better than expected, expect a gap up Wednesday morning, however, and AAPL miss will likely produce a sizable gap down.

As soon the fireworks over the AAPL report have subsided the market will turn its focus the FOMC announcement at 2:00 PM Eastern time on Wednesday.  With such big hitters coming up to bat I would not be at surprised to see choppy price action today as the market waits holding its breath and hoping for a positive outcome.  Get ready for a wild ride.

On the Calendar

The FOMC begins its 2-day meeting on this first day of May Economic Calendar.  The PMI Manufacturing Index, out at 9:45 AM, expects to come in unchanged at 56.5 in April but continues at multi-year highs.  The biggest number or the day, ISM Mfg Index, come out at 10:00 AM and according to consensus will decline slightly but remains strong in April coming in at 58.6 vs. the 59.3 March reading.  Also at 10:00 AM is the Construction Spending report which forecasters expect to grow by 0.5 percent in March.  A 4-week Bill Action will close out the calendar day at 11:30 AM.

Another big day of earnings reports with just over 260 companies on the calendar.  Stay on your toes and keep checking reporting dates for the companies you hold or those you’re about to purchase because there are more than 800 reports yet to come this week.

Action Plan

An unpleasant day on Monday as the market served up a classic Pump and Dump leaving behind a lot of bearish candle patterns.  The DIA, the SPY, printed Bearish Engulfing patterns that are unfortunately showing a failure at the 50-day SMA.  The QQQ followed through to the downside confirming Friday’s failure of the 50-day SMA.  The IWM joined the party yesterday with a bearish engulfing pattern breaking its 50-day average after working so hard to hold it last week.  Earnings reports by-in-large continue to come in strong, but sadly profit takers continue to overpower buyers reacting to the good results.

Although there are over 260 companies reporting today all eyes seem to focus on just one, AAPL.  The tech giant is weighed heavily in not only the QQQ but also the DIA and SPY.  AAPL reports after the bell today and could reverse or confirm the current market downtrend.  It would be wise to plan for a market gap up or down Wednesday morning.  If that were not enough drama, the market must turn its attention to the FOMC announcement at 2:00 PM Eastern time.  Buckle up this could be a very bumpy ride.

Trade Wisely,

Doug