Three-Day Weekend

With the wild 2018 Q1 coming to an end today it seems very appropriate it culminates with a three-day weekend.  Tensions have been very high, and nervous traders could use some time to decompress and prepare for Q2.  Typically, volumes drop ahead of a long weekend and price action becomes quite choppy.  However, with frayed nerves and emotions, high anything is possible.  Keep a close eye on the price action watching for clues of additional selling as traders may choose to go into the long weekend with their cash safely tucked away in the account.  On the other hand, the bulls could attempt a little relief rally in a reaction to the 200-day average on the SPY and DIA.  Long story short prepare for anything ahead of this three-day weekend.

On the Calendar

On this last trading day of Q1, the Economic Calendar has several potential market-moving reports.  At 8:30 am the Jobless Claims consensus is looking for a slight decline of 1000 to a 228k print vs. 229K last reading.  Also at 8:30 AM, forecasters expect the Personal Income and Outlays report to show a 0.4% increase in personal income.  Consumer spending is also expected to rise 0.2% with the closely watched core PCE price index coming in at 0.2% in February and a 1.5% annualized reading.  Consumer Sentiment is at 10:00 AM and expected to remain strong with a 102.0 forecast reading.  There are several other non-market moving reports throughout the day, a Fed Speaker at 1:00 PM, and a couple of bond-related events to close out the quarter.

The Earnings Calander shows 89 companies stepping up to report today.  Make sure you have a plan if you’re holding or considering an entry on stocks that are reporting.

Action Plan

Yesterday indexes experienced some 2-sided choppy price action as the bulls and bears battle around the SPY and DIA 200-day average.  The Dow traded in a chop range of more than 350 points making it a very challenging and frustrating environment for most traders.  Currently, the Dow Futures are pointing to gap up open that but still within yesterday’s choppy range.  With a 3-day weekend ahead don’t be surprised to volumes drop quickly after the morning rush.

Have an awesome extended weekend everyone.  Happy Easter!

Trade Wisely,

Doug

Extreme Volatility

Resistance proved to be too strong yesterday with the bears laying in wait to ambush the morning rally.  Current price action is displaying such extreme volatility even the most adept and experienced day traders find it challenging.  Trying to navigate such volatile price action as a swing trader would only be suitable for those with a very high tolerance for risk.

I have been warning that swing traders have little to no edge when a market becomes so violently emotional.  If your continues to be chopped up, stop trading until the market calms down and your edge returns.  Standing aside during times like this does not make you less of a trader.  In fact, I would argue it makes you the smart CEO of your trading business that recognizes when the risk is just too high.  Remember cash is a position that can serve you well in times as volatile as these.

On the Calendar

There are a total of five reports that come out at 8:30 AM Eastern on this last hump day in March.  Two of the five, GDP and International Trade in Goods could easily move the market while with corporate Profits, Retail Inventories and Wholesale Inventories unlikely to do so.  The GDP number according to consensus is expected to rise slightly to 2.7% annualized vs. the last reading at 2.5%.  Consumer spending should hold steady at a 3.8% rate with the GDP index unchanged at 2.3%.

Consensus suggests the deficit in International Trade will narrow slightly to 74.0 billion vs. December reading of 75.3.  At 10:30 the Pending Home Sales Index is expected to bounce back 3% after posting a sharp 4.7% decline in February’s report.  The EIA Petroleum Status report produced a surprise decline in supplies on the last reading helping to boost oil prices.  It’s 10:30 AM reading today is not forecast forward but does have the potential of moving the market on its release.  We have a Fed Speaker at 11:30 AM, two note auctions and then Farm Prices report at 3:00 PM to close this busy day.

The Earnings Calendar shows 83 companies are expected to report results today as if there is not already enough to keep us on our toes today.

Action Plan

Yesterday I suggested it would be wise not to chase the morning gap and to be careful buying as the market pushed up toward resistance levels.  After a nice morning rally which looked steady and consistent, the market ran headlong into a bear ambush.  At the close, all four of the major indexes closed with bearish candle patterns as high volatility continues to plague the market.

With the Dow, less than 500 points away from its 200-day average it seems the odds would favor the bears testing this important level.  Please exercise caution if you do plan to trade and remember swing traders have very little edge when such volatility exists.

Trade Wisely,

Doug

Short Squeeze Rally

An impressive short squeeze rally was triggered yesterday as panic over a potential trade suddenly seemed not so likely.  To protect themselves from additional losses traders that were holding short positions were forced to cover accelerating the rally and squeezing even more out as the day progressed.  A whipsaw of this magnitude clearly demonstrates just how quickly very emotional markets can shift direction.  With the Dow rallying 669 points and this morning futures pointing to a more than a 100 point gap up guard yourself from getting caught up in this quickly shifting drama.

The fear of missing out (FOMO) is a powerful emotion that often efficiently robs traders of their hard-earned capital so quickly it will leave your head spinning.  Focus on the price action of the and remember to hold onto your edge realizing that in just one day markets are now very close to overhead resistance in a bearish overall pattern.  Keep in mind huge intraday point swings are possible so if you trade make sure you have handle the risk.

On the Calendar

The Tuesday Economic Calendar kicks off at 8:55 AM with the Redbook report which is unlikely to move the markets.  At 9:00 AM the Case-Shiller is calling for continued strength in home prices with an adjusted monthly consensus of 0.7% gain and a year-on-year rate seen at 6.2%.   Consumer Confidence is out at 10:00 AM and consensus remains very strong expecting a 131.0 reading in March vs. February’s 130.8 print.  Also at 10:00 AM are two non-market moving reports the Richmond Fed Mfg. Index and the State Street Investor Confidence Index.  Other than that we have a Fed Speaker at 11: 00 AM as well as three bond auctions.

On the Earnings Calendar, I show 69 companies that are expected to report today.

Action Plan

With trade war fears suddenly diminishing yesterday’s market experienced a strong short squeeze forcing many traders to cover short positions to stop growing losses as the market rallied.  This morning Dow Futures are pointing to more than a 100 point gap up at the open as the bulls try to follow through with some buying pressure.  As good as it was to see such a nice relief bounce lets keep in mind that the indexes have significant overhead resistance and technical damage that it has yet to recover.  At the close yesterday, the Dow is more than 950 points below its 50-day average with the SP-500 over 80 points below.  Long story short, there is a lot of work to do even though both the Dow and SP-500 are displaying a possible double bottom pattern.

Be careful chasing morning gaps after such a big one-day-rally keeping in mind that short-term profit taking could occur at any time.  The VIX remains above its 50-day average so continue to expect large intraday price swings, head fakes, and nasty whipsaw price action where the swing trader edge is small, and the potential for risk is high.

Trade Wisely,

Doug

[button_2 color=”green” align=”center” href=”https://youtu.be/AyGhr1KWyD4″]Morning Market Prep Video[/button_2]