Blue Ice Failure

Yesterday I wrote that the market was walking a tightrope and a misstep could bring on Blue Ice Failure pattern.  Unfortunately, that misstep occurred bringing down the Dow 1032 points at the close.  The VIX rallied back above 33 as fear and panic gripped the market.  Many are pointing to the fear of rising interest rates as the catalyst for the selling, but I think the real culprit is the leveraged VIX products.  They seem to be blowing up in the face of the institutions that created them and costing them 100’s of millions.  In the weeks and months ahead I suspect we will hear a lot more about what really happened.

Once again Futures in the pre-market are all over the place with very fast price action and quick reversals.  On the positive side, company earnings continue to come in very strong for the most part.  Today I am once again suggesting extreme caution.   The indexes are currently testing important price support levels.  If they hold the worst of this selloff could be over, however, should they fail today day could be a very dismal day as we seek the next level of support?  Falling to the 200-day morning average is not out of the question.

On the Calendar

The market could use some good news this morning, but there is no major report on the Economic Calendar today.  In the National News, the government finally passed a budget in the wee hours of the morning avoiding a shutdown.

On the Earnings Calendar, we also get a break today with just under 50 companies expected to report.

Action Plan

The DIA, SPY and QQQ’s finally came to rest at or near a key level of price support.  The major question for today is will it hold?  With the SPY only 4 points away from the 200-day moving average I fear the selling could easily continue to test this important level.  The QQQ’s would need to fall over 5 points to test the 200 while the DIA would need to decline a whopping 11 points to visit this important average.  That would mean the Dow falls another 1100 points!  So cross your fingers and hope the current price support holds.

With volatility so high anything is possible.  This is a market for the very fast day traders and big institutions.  As swing traders, we have no edge amidst the fast reversals and whipsaw price action.  As a result, I continue to remind everyone that cash is a position and in the current market condition it’s a darn good one.

Trade wisely,

Doug

Walking a Tightrope

With price volatility high and potential failure patterns left behind, yesterday traders should be on high alert.  It’s as if the market is walking a tightrope where just one misstep could lead to a quick and painful fall.  At the close yesterday, the VIX was on the rise closing above 27 to display the rising trepidation of the current market conditions.  Currently, the DIA, SPY, and QQQ charts have bearish failure patterns at the 50-day moving average.  Personally, my hope is we can consolidate for several days to spill-off a bunch of this volatility but to ignore this pattern would be unwise.

On The Calendar

The Thursday Economic Calendar is full of non-market moving reports, bond events, and four Fed Speakers.  The only market-moving report comes at 8:30 AM Eastern when the weekly Jobless Claims number release.  Consensus expects claims to come in at 235,000 continuing to confirm strong labor demand.

On the Earnings Calendar, we have nearly 250 companies reporting.  Before the bell today we will hear from CVS, PM K, TWTR, and YUM to name a few.  After the bell reports from AIG, NVDA, ATVI, EXPE, SKX, and FEYE are a few keep traders on their toes.

Action Plan

Yesterday proved to be a choppy day of price action as the DIA, and SPY attempted to recover the 50-day moving average.  Unfortunately, by the end of the day, they were unsuccessful, setting up a possible Blue Ice Failure Pattern.  The QQQ also made a valiant attempt to hold the 50-day average only to give it up just slightly at the close.  Surprisingly only the IWM managed to hold on to a positive close but remains the weakest of the 4-major indexes.

The VIX tried moving lower but finished the day above 27 suggesting market volatility will remain challenging.  With the failures a the 50-day average its impossible to see anything other than a bearish pattern.  Morning Futures are currently pointing to a lower open at least initially confirming a Blue Ice Failure pattern.  However, there are a lot of earnings reports this morning that could improve or make worse the situation.  Combine the bearish pattern with high volatility, and the conditions for a perfect storm exist.  I recommend extreme caution as we head toward the weekend.

Trade Wisely,

Doug

High Volatility

After the very choppy morning session, Mr. Market finally got it together to deliver some sweet relief.  I wanted to believe the big swings were over but I stuck to my rules choosing to wait for proof of support.   The Dow Futures moved from 250 points down to nearly flat in just one hour this morning.   Such high volatility can produce false signals and violent reversals.  I’m glad I have developed some discipline in my old age and decided now to chase yesterday.  Remember. just like the Grinch, Mr. Market can be a Mean One.

The VIX pulled back yesterday due to the late afternoon rally, but it still closed above a 30 handle.  That would suggest that there is still considerable fear and violent gaps and price reversals are very likely.  For the last couple years, the market was very forgiving, but for now, that has changed.  If your chaise or try to predict a bottom, a punishing lesson in discipline is now a possible result.

On the Calendar

The Economic Calendar has a parade of Fed Speakers to pontificate on interest rates.  Kaplan spoke at 6:00 AM, Dudley at 8:30 AM, Evans at 11:15 AM and Willams will finish the day at 5:30 PM.  The important report of the day is the 10:30 AM EIA Petroleum Status report.

On the Earnings Calendar, we have nearly 200 companies reporting today.  Combine a bunch of earnings with an emotional market, and anything is possible so stay on your toes.

Action Plan

At 6:00 AM Eastern the Dow Futures pointed about a 250 point gap down.  By 6:00 AM Futures had recovered to an almost even open which suggest there is still a lot of risk due to huge emotional volatility.  The relief rally was, of course, wonderful yesterday afternoon but keep in mind the VIX closed above a 30 handle.

I expect volatility to continue to produce fast price action and whipsaws.  False signals and head-fakes are very common.  Even the best of signals can quickly evaporate in this environment.  I continue to recommend extreme caution and remember the lows could see another test.  New and inexperienced traders should consider remaining on the sidelines until the price action slows back down.  If you do decide to trade, I suggest trading smaller than normal positions.  Don’t get caught up in the drama.  Stick to your rules and matain your discipline.

Trade Wisely,

Doug

The Good, The Bad and The Ugly

Can we go back to 2017?  So far 2018 has tossed at us The Good, The Bad and The Ugly in the time span of just over one month.  The Good, record highs and tremendous bullishness for the first 25 days of the year.  The Bad, last Friday’s nasty selloff of nearly 700 Dow points.   The Ugly, yesterdays record-breaking one-day selloff that wiped out all the progress for the year and then some.  So what happened?

Fear got a little out of control yesterday as the market watched Bond Yields rising rapidly and topping 2.8% by the close.  The market has also suddenly become hyper-aware of inflation and what that might mean for interest rates going forward.  As traders, we always try to compartmentalize the cause of such events to and make some sense of it all.  But the truth is when markets are euphoric or panic-stricken, it rarely makes sense.  Unfortunately this emotional roller coaster and last much longer than one would expect.  The only way to protect yourself and your capital is to stand aside and let it pass.

On the Calendar

The Tuesday Economic Calendar kicks off with International Trade at 8:30 AM.  Sadly the trade deficit is expected to widen sharply to $51.9 billion.  At 10:00 AM the JOLTS report is looking for a slight gain to 5.900 million today according to consensus estimates.   The is a Fed Speaker at 8:50 AM and some bound auctions to complete today’s calendar.

Today is a pretty big day on the Earnings Calendar with about 150 companies scheduled to fess up.  Today, we will hear from GM, DNKN, DIS, GILD and CMG just to name a few.

Action Plan

Futures have been moving very quickly and all over the map during the overnight session.  Around 11 PM last night Dow Futures were down nearly 900 points.  By 4:00 AM they were up more than 150 points but as I write this at 7:12 AM they are nearly 400.  All the blood in the water has attracted the really big sharks.  Whipped into a feeding frenzy, they will bite at anything, and we can expect this to last for a while.  Little fish like retail traders are just chum in the water and stand very little chance of escaping if we’re in the water.  Day’s, maybe even weeks of very challenging price action lie ahead.  Get out and stay out of the water if you can.

Trade Wisely,

Doug