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

Earnings Season

With the analysis expecting a strong 2nd quarter earnings season there may finally get the catalyst need to pick a direction and stop all the flip-floping price action.  If we do begin to recover the path ahead is filled with lots of resistance hurdles and political uncertainty it must continue to manage.  However, a good round of earnings could do a lot to calm the nerves of traders and investors as long as inflation remains in check.

Although earnings create is own brand of volatility it will mostly directed at individual stocks.  Anything is possible, but my hope is the big daily swings will subside, but I would continue to expect frequent market gaps and fast price action as markets deal with resistance and react to the earnings reports.  The fast price action could still be very challenging, but earnings may be the light at the end of the tunnel we have been waiting for to give an edge back to  good stock pickers.

On the Calendar

The Friday Economic Calendar has three Fed Speakers at 7:30 AM Eastern, 9:00 AM and 1:00 PM to both open and close the calendar day.  At 10:00 AM Consumer Sentiment is expected to soften slightly to  101.0 vs. March reading of 101.4, a 14 year high.  Also at 10:00 AM the JOLTS report is also expected to ease but continue to show a strong labor demand at 6.143 million job openings.  The 1:00 PM, the Oil Rig Count, is not expected to move the market.

Second quarter earnings season kicks off today with C, JPM, PNC, and WFC all reporting before the bell.  Analysts are expecting very positive results from the banks showing substantial earnings growth.

Action Plan

With easing Syrian tensions, the bulls stepped up to the plate yesterday and displayed strength all the way through the close.  With several big banks expected to kick off 2^nd quarter earnings with strong results, do we dare hope for a bullish follow-through today?   I can only guess, but if earnings come in as strong as expected, then I would venture an answer of yes, and it could finally help reduce market volatility.

Keep in mind; the index charts have a lot of overhead resistance they still have to overcome, and an armed conflict with Syria will continue to weigh heavy the mind of the market as we head into the weekend.  If in fact, the market does spill off some of this extreme volatility then swing traders with good technical skills could find a target rich environment of discounted stocks.  I wish you all a wonderful weekend.

Trade Wisley,

Doug

Threat of military conflict.

With 2^nd quarter earnings just around the corner, I get the impression the market wants to go up but is tentative due to the threat of military conflict with Syria.  Another consideration is the coming weekend.  Will traders hold with the uncertainty of military action or will they prefer to exit positions much like we saw last Friday?  As the CEO of your trading business, what will you do?  Making the decision even harder is the daily reversals in the overnight futures prices.  It’s a tough call.

There are a lot of charts shaping up and forming good patterns, but with the market flipping direction on a daily basis it’s difficult to plan trades when your edge and slip away in the overnight session.  If you do decide to trade it may be wise to take smaller than normal positions as a way to compensate for the uncertainty.  If the market moves in your direction and actually follow through for more than just one day one could always add to the position.   With the VIX stubbornly holding above a 20 handle expect volatility, whipsaws and fast price action to continue.

On the Calendar

We kick off Thursday with the weekly Jobless Claims at 8:30 AM Eastern which consensus expects to come in at 230,000 showing strong labor demand.  Also at 8:30 AM is the Import & Export Prices which expects imports to show a modest increase of 0.2% with export prices up 0.3%.  Nonmarket moving reports form Bloomberg Consumer Comfort Index, Natural Gas Report, 4-bond events, Fed Balance Sheet, Money Supply and a Fed speaker at 5:00 PM to finish up the calendar day.

On the Earnings Calendar, I see 24 companies are stepping up report results today.  Remember 2^nd quarter earnings officially kick off tomorrow with several big banks reporting.

Action Plan

Yesterday a gap down of about 200 points and this morning a gap up of more than 100 points is currently indicated in Dow Futures.  The VIX continues to rest above a 20 handle and above its day moving average as sabers rattle between the US and Russia.  With the uncertainty of conflict, oil prices continue to sharply rise which we will likely translate to higher prices at the pump very soon.

With the uncertainty, we should prepare for fast price action and quick reversals if military action begins.  Let’s hope cooler heads prevail, and an armed conflict never occurs.  These daily reversals are becoming tiresome, but perhaps we can get some relief with the kickoff of 2^nd quarter earnings and see a direction maintained beyond a single day.  However, with the weekend just around the corner, traders will have to decide if they want to hold with the threat of military conflict looming.  It could be a bumpy ride.

Trade Wisely,

Doug