Massive Short Squeeze

The quickly shifting sentiment on Trade War fears was reversed yesterday as White House officials spoke calmly of their intentions triggering a massive short squeeze yesterday.  From opening low to the high of the day, the Dow traveled more than 775 points.  There is still a lot of work to be done to confirm a market bottom, but yesterday bullish engulfing pattern at a major moving average is certainly a nice start.

The negotiations with China are far forming over so don’t’ be surprised if jitters and shock waves keep the market off balance and volatile in the day to come.  With so many charts producing buy signals, yesterday traders will have to be choosy and carefully weigh the risk of volatility against their tolerance when planning new positions.  Also, keep in mind after such a big move we could see some profit taking or consolidation ahead of the Friday’s job report.

On the Calendar

There is a full Economic Calendar this Thursday, but only two market-moving reports that both come out at 8:30 AM Eastern.  The International Trade deficit is expected to widen slightly to $56.7 billion in February.  This deficit is one of the trade metrics that is under negotiation with China that could quickly improve if a fair trade deal.  Then we have the Weekly Jobless Claims which consensus expects to come in at 230K.  Other than that we have several lessors reports a bunch of bond announcements and a Fed Speaker at 1:00 PM.

The Earnings Calendar is only showing 19 companies reporting earnings today.  Notable before the bell is MON, and then after the bell PSMT reports.

Action Plan

A big win for the Bulls yesterday after gaping down about 500 points the Dow recovered sharply to close the day up 230 points.  Such is the nature of politically generated volatility as panic, and then relief quickly reverses market sentiment.  Big bullish engulfing candles now grace all 4 of the major index charts at or near the daily 200 moving average.  Current downtrends have yet to reverse, and there is a lot of overhead resistance to deal with but yesterdays price action was a good start to a potential recovery.

Currently, the Dow Futures, point to a higher open but don be surprised if the market rests or pulls back as we wait for the Employment Situation report before the market open on Friday.  There are a lot of very good looking charts in the watchlist and scans.  If you trade to keep in mind, the threat of politically generated volatility still exists so plan your risk accordingly.

Trade Wisely,

Doug

Political Volatility

I have mentioned how challenging politically motivated volatility can be for traders.  The cruel overnight reversal triggered by a single Tweet is evidence of how damaging it can be to a traders account.  As technically, analysts, we try to maintain an edge through the study of price action.  Unfortunately, that edge completely disappears during periods of political uncertainty.  Very fast and experienced day traders can make hay in this kind of environment and investors simply ride it out.  It’s the swing trader that’s particularly disadvantaged by the violently shifting sentiment.  During times like this holding on to an edge is a bit like trying to rope the wind.

On the Calendar

The Wednesday Economic Calendar has several reports that the market could get a reaction from today.  At 8:15 AM Eastern ADP Employment report is looking for a slow down in job gains to 185,000 vs. 234,000 reading in February.  The Factory Orders at 10:00 AM is looking for a solid rise of 1.7% adding to the impressive strength of the February reading.  Also at 10:00 AM the ISM Non-Mfg Index is to continue showing strength with an expected reading of 59.0 today according to consensus.  Then at 10:30 AM we will get the EIA Petroleum status numbers which do not forecast forward but certainly have the power to move the market substantially.  Filling out the rest of the calendar we have the PMI Services index which is not expected to move the market as well a 2-Fed Speakers to be aware of at 9:45 and 11:00 AM.

We have only 36 companies on today’s Earnings Calendar.  Most notable is the report from CAR before the bell, and after the bell, we will get results from the home builder LEN.

Action Plan

Yesterday we had some sweet relief as the bulls started the day positive and continued to push higher steadily higher through the day closing the Dow up 389 points.  Unfortunately, all that good work looks to be completely reversed this morning as the Trade War rhetoric heats up.  As I write this, Dow Futures are pointing to a 500 point gap down as both the US and China issue threats of new tariffs.

As I mentioned earlier this week politically inspired volatility is a very challenging environment in which to trade.  Violent reversals that shift the course of the market, with the efficiency of the instant news cycle.  Swing traders are disadvantaged in such an environment which is clearly evident this morning.  Keep in mind the market could change again with the speed of a Tweet so plan your risk accordingly.

Trade Wisely,

Doug

Gloom and Doom

It’s pretty difficult when looking at index charts to see anything other than gloom and doom.  There is technical damage everywhere you look, and a general feeling of dread has gripped the market.  The financial news headlines have become predominantly negative with more and more talking heads predicting more gloom and doom to come.  Having traded for more than 28 years, I can tell this is the normal process of correction.

If you remember when the selloff began I suggested this would take weeks if not months to resolve.  That was not a prediction of the future just the experience of an old trader that has seen this many time before.  The market will eventually heal and better days will return.  Remember its always darkest before the dawn, and we will likely see more days of gloom and doom ahead but when it’s over a target rich environment will emerge as great stocks will be at discount prices.  Believe that.

On the Calendar

Motor Vehicle Sales tops the Economic Calendar which comes out very early in the pre-market and is the only report likely to move the market today.  Forecasters expect Motor Vehicle Sales to remain soft with total unit sales slipping to 17.0 million annualized rate vs. the February 17.1 reading.  Domestic sales expected to slip from 13.2 million in February to a 12.9 million rate today.  The Redbook is out at 8:55 AM, a Fed Speaker at 9:30 AM and a bill auction at 11:30 AM wrap up the calendar for today.

We also have a light day on the Earnings Calendar with only 18 companies expected to report results.

Action Plan

Yesterday was an ugly day in for the market with three of the four major indexes dipping deep enough to test their 200-day moving averages.  Only the QQQ managed to hold just above its 200-average which was just over one point away from the low of the day.  The SPY really took it on the chin closing below the 200-average, despite the late rally bouncing the indexes off the lowest prints of the day.  Even the popular FANG stocks had not escaped technical damage with AMZN now down more than 15% from its high print less than one month ago.

Currently, futures are pointing to a gap up open of more than 75 points, but I would be very careful trying to anticipate a bounce with the QQQ’s so close to a 200-average test.  If you take a look at the weekly index charts, we are very close to testing the weekly 50-averages which could easily see a test in the coming days.  Remember its always the darkest before the dawn.  The selling will eventually stop, and great stocks will be on sale at discount prices.  However, repairing so much technical damage could take some time, and we could see some very choppy price action ahead as the markets try and build a level of support.

Trade Wisely,

Doug

Do you believe in magic?

I’m going to kick off this quarter with a little rant.  Over the long weekend, my email and social media feed’s filled with all kinds of offers selling the dream of simple market riches.  They all allude to some newly discovered indicator or pattern that can suddenly transform any trader into the super wealthy almost overnight.  That is total BS!  There is no magic or double top secret newly discovered formula you can buy that will make you rich.  Sorry to burst your bubble but it’s the truth.

There is only one way to success in any business.  It’s called hard work.  It’s the original and the only magic formula to success.  Start with some education, develop a trading plan (business plan) pull up your big-boy britches and get to work.  Trading success is a marathon, not a sprint.  There are obstacles to overcome and a lot of frustrating times on the path to success.  However, if you stay dedicated, disciplined, focused, willing to pay your dues and put in the overtime, then success can be yours.  Choose to believe in all that other mumbo-jumbo and plan to provide liquidity to those that do it the old-fashioned way.  Hard work!

On the Calendar

The Economic Calendar on the first trading day of Q2 the Economic Calendar hits the ground running with three important reports.  At 9:45 AM Eastern we get the PMI Mfg. Index which consensus expects to come in steady and strong with a 55.7 reading.  The ISM Mfg. Index at 10:00 AM expects a slight decline to 60.0 vs. the 60.8 February print that hit a very strong 14-year high.  Also at 10:00 AM is Construction Spending which consensus suggests will bounce 0.5% higher in February vs. the flat reading in January.  There are 7-bond events on the calendar as well as a Fed Speaker at 6 PM to round out the day.

On the Earnings Calendar, there are 132 stragglers expected to report Q4 2017 earnings today.

Action Plan

On Friday the Bulls managed a nice bounce of more than 250 Dow points.  The bullish sentiment spread across the all 4 of the major indexes but they all remain in down-trending patterns and below significant levels of price resistance.  Historically stocks do much better in April, but we seem to be getting off to a rocky start for the Q2 with the Dow Futures currently suggesting a gap down open of more than 75 points.  China announced the new tariffs on more than 120 products yesterday as our two governments square off for a Trade War and keeping the markets on edge.

After a 3-day weekend, it’s normal to see some light and choppy trading as traders extend their vacations one more day but that may not be the case today with so much nervous energy.  With earnings and economic reports continuing to demonstrate strength, our current uncertainty is by-in-large politically generated.  Political volatility is very challenging to trade because complete market reversals can occur as often and as quickly as the political spin shifts.

Trade Wisely,

Doug