Employment Situation

The 800-pound gorilla in the room today is the Employment Situation report and what it may or may not reveal about inflation.  Consensus suggests the unemployment rate will drift lower to just 4% and could point to wage pressures.  The SPY by the close of the market yesterday defeated the 50-day average but only by half a point.  The Dow continues to lag behind struggling with the 25,000 level and still 390 points below its 50-day average.

Price action the last couple days has been encouraging with the bulls defending against pullbacks.  If the Employment Situation report shows inflation is in check, the bulls appear to have the upper hand.  Expect fast price action after the open and keep in mind whipsaw are possible due to the overall market volatility.

On the Calendar

We have the biggest report of the week on the Economic Calendar before the market open.  The Employment Situation comes out at 8:30 AM may provide clues that will influence the FOMC coming decision on interest rates.  According to consensus, February non-farm payrolls are expected slightly higher at 205,00 vs. the 200,000 reading in January.  The unemployment rate is expected to tick down to 4.0%, but hourly earnings, rising only by a modest 2% in the month with year-on-year holding at 2.9%.  We have one Fed Speaker today that is speaking three times 8:40 AM, 10:45 AM and finally 12:45 AM.  There are two other non-market moving reports such as Wholesale Trade at 10:00 AM and the Oil Rig Count at 1:00 PM.

On the Earnings Calendar, we have just 73 companies reporting results today.

Action Plan

Once again it was encouraging to see the bulls hang in there yesterday and not give in to all the hype over trade wars.  In fact, if you judge by the market reaction, the President’s plan thus far was a non-event.  This morning it’s all about the Employment Situation report.  Unfortunately, all we can do as retail swing traders is to deal with the gap up or gap down that it’s capable of producing at the open.  As I write this, futures markets are essentially flat as the market waits.

A report that does not display inflationary pressures could move the market higher which the price action seems to favor at the moment.  Of course, if inflation is seen raising its ugly head enough to cause an FOMC reaction the market tone could quickly shift bearish.  Only time will tell, and all we can do is patiently wait for the open.  I wish you all a great day and a fantastic weekend.

Trade Wisely,

Doug

Battle for Control

Yesterday’s defense of support was indeed a very welcome sight.  Price action would suggest that the bulls may be gaining the upper hand, but this battle for control will still require a significant effort.  Although the QQQ and IWM are above the 50-day average, the SPY and the DIA are still below giving a reason for caution.  As this battle for control plays out, keep in mind that the VIX is still indicating significant volatility.  It would also be wise to remember that the Employment Situation number Friday morning has the potential to move the market substantially.  The market seems to be very sensitive to any hint of inflationary pressures.  Friday’s report could provide and important clues to the next FOMC action.

On the Calendar

There is a full Economic Calendar today, but there is only one report that’s likely to move the market.  At 8:30 AM the Jobless Claims number came in at a 49-year low last week should rise slightly to 220,000 according to consensus.  We will also hear from the Challenger report, Consumer Comfort, Services Survey, Nat. Gas Report, Fed Balance Sheet and Money Supply and several bond events throughout the day.

Today is the biggest day of the week on the Earnings Calendar with 236 companies expected to report.  Make sure to check reporting dates on the companies you hold and those you’re considering to purchase.

Action Plan

After gapping sharply lower, Wednesday proved to be a roller coaster ride as the bulls and bears fought for control.  By the end of the day, the bulls had the upper hand with the SPY once again testing the 50-day average from below.  The QQQ held firmly as the market leader, and in a surprising show of strength the small caps confidently broke resistance levels as well as defeating the downtrend.  The Dow is the market laggard still more than 400 points below its 50-day average and 200 below the big round number of 25,000.

Futures this morning are currently suggesting a flat to slightly bullish open with the VIX hovering around a 17 handle.  With bulls showing a strong willingness to defend price supports I’m cautiously optimistic that they are gaining the upper hand.  However, with the DIA and SPY still below the 50-day and important clues on inflation coming in Friday morning Employment Situation report, anything is possible.  Stay focused on price and remain flexible.  Don’t buy anything that you are not willing to hold through some volatile swings.  Smaller than normal position sizes can be a good way to plan for the additional volatility.

Trade Wisely,

Doug

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