Strong Earnings performance.

A slight decline in rates coupled with strong earnings performance gave the bulls want they needed to recover a good deal of the Tuesday sell-off.  While the relief rally produces some very nice profits for us, we must recognize the significant resistance that lies above on the DIA, SPY, and QQQ.  With the GDP expected to show a decline in the 1^st quarter the bull may find it difficult to drive higher ahead of the weekend.  Even if the numbers come in better than expected, it would not be out of the question to see some profit-taking after the 2-day Dow rally of nearly 500 points.  Also, keep in mind there are 100 companies reporting earnings today, so continue to expect fast price action and watch for the possibility of reversal with such strong resistance above.

On the Calendar

We get things going on the calendar with the very important GDP report at 8:30 AM Eastern.  According to forecasters, the GDP should come in at 2.0 for the first estimate of the 1^st quarter vs. 2.9 in the 4^th quarter.  Consumer spending is expected to sharply decline to a 1.1% rate vs. the very strong 4.0% from the 4^th quarter.  The GDP price index is expected slightly higher at 2.4%.  Also at 8:30 AM, the Employment Cost Index, is also expected to tick higher to 0.7% for the 4^th quarter reading vs. 0.6% in the 3^rd quarter of last year.  Consumer Spending comes out at 10:00 AM expects a decline to 98.0 vs. the 101.4 reading in March which was a 14-year high.  The Oil Rig count come out at 1:00 PM and Fram Prices at 3:00 PM but are not expected to move the market.

The Earnings Calendar now shows 100 companies that will report today to close our a huge week of earnings.  However, don’t relax just yet because next week is also a very big week on the earnings calendar.  Keep checking and stay on your toes.

Action Plan

With such a nice rally yesterday I would love to sound the all-clear siren, but the truth is all we have done to this point is to rally back into a zone of resistance.  After making significant strides to recover the Bulls now face a tough level of price resistance and the 50-day moving average.  Great earnings out of AMZN, INTC, and MSFT after the bell may offer some help, but currently, the Futures markets are pointing to a lower open.

Lately, Friday’s have experienced profit taking as traders the get out the way before the weekend.  With Economic reports, this morning expected to show a weakening of consumers in the 1^st quarter the bulls may find it challenging to push higher.  Of course, with 100 companies expected to report today, we should expect this week’s bumpy ride to continue.  Watch for clues of reversal and have a plan to respond.  Have a wonderful weekend!

Trade Wisely,

Doug

Potholes abound.

Without question, this has been an odd earnings season full of potholes making for a very rough ride.  It began with the big banks beating estimates on both the top and bottom line but found sellers for the effort.  Unfortunately, that seems to have become a trend of this season as strong earnings reports continue to bring out the bears.  After the bell yesterday, we received a large number of strong reports, and once again the futures are pointing to a bullish open.  The question is will the positive open once again attract sellers?  A challenging environment to be certain.

The DIA, SPY and the QQQ are farther from the last swing highs of 4/17 and 4/18 then they are from the April lows.  The bounce yesterday was a nice relief, but with we remain under the 50-day averages the bears have the advantage, and any weak rally is therefore suspect.  Be very careful because the road ahead could be full of deep potholes.

On the Calendar

The Thursday Economic Calendar kicks off at 8:30 AM Eastern with the Durable Goods report.  Consensus expects an increase of 1.7% in March with ex-transportation up 0.5% and core goods rising 0.6%.  International Trade in Goods also out at 8:30 AM expects the deficit to narrow in March to $74.0 billion.  The one last 8:30 AM report today is the weekly Jobless Claims which consensus expects to come in at 230K as strong labor demand remains solid.  There are several other reports today as well at three bond events, but they are not expected to be market-moving.

A very busy day on the Earnings Calendar with 387 companies stepping up to report quarterly results.  Reports by in large continue to come in strong, but the trend this season appears to attract more sellers than the buyers after strong results.  Stay on your toes.

Action Plan

After Tuesday’s strong selloff the indexes managed to find a little buyers support, but bulls seemed to lack conviction.  At the end of the day, downtrends are still intact, and the DIA, SPY and QQQ’s remain under significant resistance levels.  Stocks that report strong earnings gap up at the open only to find sellers driving the price back down.  An odd and very challenging earnings season to trade.

As always the best defense is to say focused on price action and remain flexible.  Dow Futures are pointing to a slight gap up open this morning on the back of strong earnings reports.  The question is will that once again bring ou the sellers?  Tough call.  Currently, the Dow is over 950 points away from the swing high on 4/17 and about 700 points from the April low.  Stuck in the middle of the range I think anything is possible and traders have some very tough decisions to make.  Plan your risk carefully if you decide to trade and prepare for the possible intraday whipsaw that could reverse the market direction.

Trade Wisely,

Doug

Shock-waves

Yesterday I wrote that the market was looking for inspiration and the bears certainly found it during the CAT conference call. During the call, CAT pointed to the first quarter as the high water mark for the foreseeable future, and that sent shock-waves through the entire market.  Stocks that were enjoying nice bullish moves but quickly reversed as bearishness spread across most market sectors.

In yesterday’s note and morning prep video, I mentioned how important it was for the bulls to recapture the 50-day average or it would open the door for the bears.  That turned out to be correct, but I have to admit I was surprised by the violence of the move.  As a result, lower highs in the DIA, SPY and the QQQ are now confirmed raising the possibility of a retest of April lows.  Futures are pointing to a follow-through gap down this morning to drive home the point that the bears are back in control.  With so many earnings reports on the calendar, more shock-waves are certainly possible.

On the Calendar

A light Wednesday on the Economic Calendar with only one market-moving report.  At 10:30 AM Eastern the EIA Petroleum Status Report could be very important for the market today in the light of yesterdays sell-off.  Oil and oil stocks have enjoyed a strong bullish move due to the tension in Syria and the drop in supply numbers from the last status report.  Other than that we have a Mortgage Applications report at 7:00 AM and 2-bond auctions that finish the calendar day.

The Earnings Calendar nearly doubles from yesterday with 245 companies slated to report results.  Yesterday certainly proved that the market reaction to earnings reports can be violent and unpredictable.

Action Plan

With more than 600 earnings reports yet to come we must be prepared for a bumpy ride.  I mentioned yesterday to stay focused on price action and remain flexible, but holy cow yesterday’s bearish reaction to mostly good reports was shocking.  The major selling seems to have triggered during the CAT conference call when they referenced the first quarter as a high point and expect results to diminish looking forward.  Your guess is as good as mine as to how that statement translated into a broad-based selloff.

Dow futures are currently pointing to gap down by more than 100 points, and the VIX appears set to break its current downtrend.  Please keep in mind that as the market chews through all the coming reports that anything is possible.  While the move yesterday may have seemed irrational, please remember it can remain that way much longer you can stay liquid.  Set your bias aside stay focused on price action and follow it rather than fight it.  Expect the bumpy ride to continue with fast price actions and possible intraday whipsaws that could quickly reverse direction.

Trade Wisely,

Doug