Hypersensitive

I must admit after the close yesterday I was encouraged that daily range of price action seemed to be calming slightly.  I was also happy to see the bulls ability to defend the big Tuesday gains as the SPY tested the 50-day average from below.  Sadly after the close, news of the Cohn resignation, reignited the volatility of this hypersensitive market.  Currently, the futures are pointing to a substantial gap down at the open.  If selling persists after the open, we could see another failure of the 50-day average and another lower high.  We should prepare for very fast price action at the open and the possibility that last Friday’s low might see a retest.  Buckle up it could be a bumpy ride today.

On the Calendar

A big day on the Economic Calendar begins at 8:15 AM with the ADP Employment Report which is expected to show 195,00 gain in private payrolls.  At 8:30 AM the International Trade deficit is expected to widen to 55.1 in January vs. February’s 53.1 reading.  Also at 8:30 is the Productivity and Costs report which according to consensus rose at an annualized 3.2% rate.  10:30 AM brings the EIA Petroleum Status Report which is not forecast forward but has recently supported oil prices showing supply declines.  The Beige Book which is used by the FOMC when making a rate decision is out at 2:00 PM today.  If it shows, inflationary pressures are rising the interest rate hypersensitive market could react.  Also on the Calendar this morning are three Fed Speakers on the speaking tour ahead of the FOMC meeting later this month.

On the Earnings Calendar, there are just over 150 companies expected to report results today.  By in large earnings continue to come in mostly positive with earnings growth projected this year.

Action Plan

The price action yesterday was very 2-sided, but at the close, I was happy to see the range of the day finally staring calm down a little.  Unfortunately, after the close, a sucker punch came flying in as the Wall Street-friendly Cohn resigned.  Futures moved sharply lower on the news and this morning as I write this a gap down of about 300 Dow points look likely.  So much for calming down!  Technically speaking this new could not have come at a worse time with the major indexes testing the 50-day moving average.  The big question to be answered now is; will last Friday’s low hold as support?  Let’s hope cooler heads prevail.

Expect very volatile price action this morning as the market works through the emotion of the morning gap down.  Intraday whip-saws are likely, and price action could be very fast.  Anything is possible so remain flexible and avoid making decisions based on your particular bias.  Focus on price and the clues it will provide.

Trade Wisely,

Doug

Symmetrical triangle

Yesterday follow-through bullishness was a welcome sight, but at the same time, it raised additional caution flags as we approach the 50-day average resistance on the SPY and the IWM.  The DIA still has to rally significantly just to reach its 50-day with the QQQ’s remain the dominant market leader.  Looking at the index charts, we now see the possibility of a tricky symmetrical triangle pattern.  The Symmetrical triangle pattern gives us about 50/50 odds of it breaking higher or breaking down.  The large range between the high and low makes the current pattern particularly challenging.

If you recall it was just one week ago when the Dow rallied 400 points in a single day.  The next day it gave it all back, and that was when the index had managed to break above the 50-day.  Now the dilemma we face is that the big rally yesterday only brought is back to test the underside 50-day average.  Fortune may favor the bold if your right on direction but the bold could also lose a fortune if they happen to be wrong.  Volatility remains high so plan your risk accordingly.

On the Calendar

Today’s Economic Calendar begins and ends with Fed Speakers today on the lead of the FOMC announcement on March 21^st.  Dudley speaks at 7:30 AM, Brainard at 7:00 PM and Kaplin at 8:30 PM.  The Redbook number is out at 8:55 AM as well as a couple of bond events which are very unlikely to move the market.  However, the Factory Orders report at 10:00 AM can move the market and according to consensus will see a decline 1.2% in January.

On the Earnings Calendar today we have 142 companies reporting results.  Stay vigilant as the first quarter earnings season drags on and on.

Action Plan

A very encouraging day yesterday as indexes followed through on from Friday’s bullishness.  The higher low has now developed a potential wedge pattern or what many call a symmetrical triangle.  The SPY and IWM are not testing their respective 50-day averages but still have the resistance levels above as well as the downtrend yet to conquer.  Believe it or not, the Dow needs to rally 400 points more just to test its 50-day averages as resistance, so there is still a lot of work that needs to be done by the bulls.  As of now, the Dow will have to prove it can get back over the big round number 25,000 which it could do battle with today.

A wedge pattern (symmetrical triangle) can be a tricky pattern to negotiate especially if that pattern has the huge range between the highs and lows we currently have on the DIA, SPY, and IWM.  The current rally has produced a lot of good-looking charts.  Keep in mind if the indexes fail to break-through the 50-day resistance the swing lower to test support again could be very punishing on any new entries.  Plan your risk carefully.

Trade Wisely,

Doug

How clever are you?

The Friday was a welcome sight but was it truly a hold of price support.  When the market is bearish, it’s easy to for traders to mistake a relief rally for bullishness.  Please keep in mind that a one-day-rally does not reverse a downtrend.  Remember to confirm a bullish candle price must follow through.  Over the years I learned that lesson the hard way by jumping in thinking I was clever enough to catch the exact bottom.  Although it would work every now and then, more often than not, I had my head handed to me with a big loss.  Not so clever after all!

I just like you am hopeful Friday’s rally will prove to hold price supports.  The operative word is “prove.”  One day of bullish price action is hopeful, but it is not proof!  The truly clever have the patience and discipline to wait for some proof and consequently take much less heat on their trades.

On the Calendar

W begin this week on the Economic Calendar with only one important report.  At 10:00 AM Eastern the IWM non-MFG index is expected to decline a bit but still very strong at 58.8 vs. January’s 59.9.  There are two reports that are not expected to move the market as well three bond actions and a Fed Speaker at 1:15 PM.

On the Earning Calendar, we have just about 60 companies fessing up quarterly results.  Make sure to keep checking as the earnings season continues to drag on for what seems forever.

Action Plan

After gapping down nearly 200 in at open, the bulls found some energy to rally off the lows in all four of the major indexes.  With the fear of Trade Wars heating up the futures are holding up better than I would have expected this morning.  As I write this, the Dow Futures on pointing to a 50 point gap down.  Not great but better than the triple point gaps of late.

Volatility is likely to remain high, but the hope of the QQQ, SPY, and IWM holding support is encouraging.  If we could get a little calming of the nerves and have price action take a little rest, perhaps better trader could be just around the corner.  Don’t mistake hope for bullishness.  Remember we are still in a downtrend and a hold near price supports may only be temporary.  Stay focused on price action, stay disciplined to your rules and plan carefully.

Trade Wisely,

Doug