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

Rules trump hope. 

Even though the price action suggested more bearishness yesterday, I must admit I was hoping for a stalemate that would hold on to the 50-day average.  Rules trump hope.  Obviously, the market could care less about what we hope for and if we try to stand and fight the market will always win.  For now, the market has chosen to remain in turmoil and fear is back on the rise.  Stick to your trading rules they are there to protect your capital from you and your emotions.  With the VIX rising price action will remain challenging with big opening gaps and violent price swings.  Let the big boys fight it out and wait for your edge to return.

On the Calendar

On this first day March we again have a busy Economic Calendar day.  At 8:30 AM the Jobless Claims are expected to come in at 230K as labor demand continues.  Personal Income and Outlays also out at 8:30 AM this morning.  The PCE price index is expected to rise 0.4% in January for a year-on-year rate of 1.7%.  Consensus expects personal incomes to rise 0.3% but consumer spending is expected to pull back slightly only gaining 0.2%.  9:45 AM brings the PMI Mfg Index report is expected to come in at 55.7 in February vs. 55.5 in January.  At 10:00 AM the ISM Mfg Index has a February consensus of 58.9 vs. the 59.1 January reading.  Also at 10:00 AM is the Construction Spending report which consensus suggests should come in with a rise of 0.3% in January.  Our new Fed Chairman Jerome Powell will speak the Senate Banking Committee at 10:00 AM and Dudley speak at 11:00 AM.

We have just over 225 companies reporting today according to the Earnings Calendar.

Action Plan

During the majority of the trading day yesterday the bulls and bears seemed equally matched, and we were chopping in a narrow range.  I was hopeful we could hold in a small range and see some claiming in the market, but obviously, the bears had other plans.  The last 30 minutes of the day the bears launch a full-on attack causing a failure of the 50-day average on both the SPY and the DIA.  The VIX quickly rose closing just below a 20 handle as investor fear spiked.  The Dow managed to hold on the psychologically important 25,000 level by just 29 points.

Unfortunately, the Dow Futures are currently suggesting a gap down of more than 100 points at the open piling onto the overall market fears.  The DIA, SPY and the IWM are now technically set up for a possible retest of the February lows.  Let’s hope the bulls call in some reinforcements draw a line in the sand and hold onto a higher low.  Expect very fast price action today and be prepared with a plan to protect your capital.

Trade Wisely,

Doug

Adapt to the change.

Up 400 points Monday and reverse it on Tuesday is the very definition of extreme volatility in my opinion.  Consequently, we must adapt to the change.  I suggested that the February selloff would require weeks if not months to resolve itself before we could get back to normal activity.  Traders often fail to recognize and adapt when the market suddenly changes character.  We try to trade at the same level of intensity as when volatility was low, and the market was trending.  Everything that had been working so well is now handing out losses and frustration.  Long story short, adapt your trading to the new normal or continue to have you account chopped up and your confidence destroyed.  You’re the boss; the responsibility rests with you.

On the Calendar

Wednesday is another big day on the Economic Calendar.  It gets going at 8:30 AM Eastern with the latest reading on GDP which consensus suggests will decline slightly by 0.15 to 2.5% annualized.  Consumer spending is expected to slip 0.1 percent to 3.7% with the GDP price index coming in at a 2.4% rate.  At 9:45 is the Chicago PMI lead by a 6-year high for employment is expected to come in with a solid 65.0 reading.  Pending Home Sales at 10:00 AM is expected to see a moderate gain of 0.3 percent today according to consensus.  To round out the calendar for today, the EIA Petroleum Status Report at 10:30 AM is not forecast but had a nice decline in supplies bolstering oil stocks.

On the Earnings Calendar, we are expecting more than 190 reports today.  I know this season seems to be dragging out forever but remain vigilant checking reporting dates and preparing a plan to deal with them professionally.

Action Plan

Yesterday I suggested preparing for the potential for a bumpy day and sadly that turned out to be correct.  Our new Fed Chairman said the Economy is improving but suggested the possibility of adding one more rate increase is possible if the improvement continues.  As a result, the Market reversed Monday’s nice bullish rally leaving behind some nasty looking bearish engulfing patterns.  The VIX, in fact, did bounce off of the 50-day average and price support that I pointed out as possible yesterday.

A bearish engulfing suggests a lower low print is likely today however with the indexes all above the 50-day average it’s entirely possible they could soon find some support at least temporarily.  Currently, futures are pointing to flat to slightly bearish open.  I see that as a very good sign because we could have easily been staring at a large gap down at the open today.  I’m expecting choppy price action today as the bulls and bears battle for control around the 50-day average.  Remember with volatility, so high anything is possible.

Trade Wisely,

Doug