Healthy Price Action

The morning the bears seem to have returned with a vengeance on their mind.  The Dow Futures are pointing to a substantial gap down it will likely punish those that chased into a 6-day rally at resistance.  While many might see this move as a negative, I view it as a sign of healthy price action.  In fact, a pullback after such a strong relief rally could be just what the doctor ordered if the bulls can defend a higher low.

I have said several times that this selloff would likely take several weeks to resolve itself.  If the bull can hold a higher low or develop a level of consolidation our swing trading Edge is likely to return.  However it the bears gain the upper hand watch for a retest of the February lows.  I know this is a biased statement, but I think the economic data and the strong earnings results will support the bulls.  However, as always I will not try and predict I will patiently watch and wait for proof in the price action that buyers have regained control.

On the Calendar

We begin this four-day trading week with a very light Economic Calendar this Tuesday.  Between 11:30 AM and 1:00 PM there are 4-bond auctions which both begins and ends the economic calendar today.

On the Earnings Calendar, we have more than 160 companies reporting results.  The first quarter earnings season seems to spread out forever.  This year we will well into March before it draws to a close.  Checking earnings against current holdings or companies, you plan to buy is a daily habit a trader should build into each day as part of your preparation.

Action Plan

Thursday and Friday left behind cautionary candle patterns in the DIA, SPY and the QQQ.  The hanging man pattern and the shooting star pattern near the 50-day average on the DIA and SPY are the most concerning.  A failure at or near the 50-day average would raise concerns of a possible retest of February lows.  However, if the bulls can manage a hold a higher low or build a level of consolidation, it could finally calm the market volatility and bring back a swing traders edge.

Today the Dow Futures are pointing to about a 200 point gap down which will create a significant fear and once again elevate intra-day volatility.  Expect some very fast price action today with the possibility of nasty whipsaw price action.  The 25,000 level of the Dow is a very importing psychological level for the market.  I suspect that will be an important battleground between the bulls and the bears.  Be very careful not to get caught in the crossfire.

Trade Wisley,

Doug

3-day weekend.

Thus far earnings and economic data have continued to fuel the relief rally that is now six days old.  Both the DIA and SPY are at key levels, and the question is will the bulls hold strong as we face a 3-day weekend.  Currently, futures are pointing to a modestly positive open.  A very nice change from the daily triple-digit gaps of the last couple weeks.  Personally, I would like to see the market rest and consolidate, but not surprisingly the market does not care about what I want.  Consequently, I need to prepare for anything and sadly that must include the possibility that the bears could re-emerge ahead of the long weekend.  Plan carefully and remain focused on price action.

On the Calendar

Friday’s Economic Calendar gets started at 8:30 AM Eastern with Housing Starts and Import/Export Prices.  Consensus expects January Housing starts to come in at a strong 1.232 million annualized rate with permits declining slightly to 1.300 million vs. 1.302.  The consensus for Import/Export Prices expects a gain of 0.6% in import prices and 0.3% for export price gains.  At 10 AM we get a reading on Consumer Sentiment which is expected to decline only slightly to 95.5 vs. the January number of 95.7 suggesting no panic in the recent market selloff.  After that, we have reports on E-Commerce Retail Sales at 10:00 AM and the Baker-Hughes Rig Count at 1:00 PM but both are very unlikely to move the market.

On the Earnings Calendar, we get a break in the pace of earnings reports with less than 60 expecting to fess up today.  Stay on your toes because we have about 700 companies on the calendar next week.

Action Plan

Yesterday the market produced a very big whipsaw to test the nerves of traders.  The Dow gapped up more than 200 points but slipped negative within 1.5 hours then rallying 300 points into the close.  That means that over the course of the day the Dow traveled more than 700 points.  Just what the doctor ordered for quick day traders but challenging for swing traders.  For the first time in 2-weeks of trading, the futures are not suggesting a triple-digit gap.  In fact, as I write the futures are close to flat but of course, as earnings and economic reports roll out a lot can change.

The relief rally is now six days old bring the DIA and SPY back above the 50 SMA.  The QQQ’s have established clear leadership, and the poor IWM continues to lag behind still below key resistance levels.  As you plan your day, keep in mind, that we have a 3-day weekend ahead.  After six days of rally and facing a long weekend it would not be surprising to see a little profit-taking begin.  However, with volatility remaining so high, anything is possible.  Guard against complacency and remain focused on price action clues.

Trade Wisely,

Doug

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Fear of Missing Out

Another day and another big gap expected as volatile price action continues.  With so much drama in the price actions, it’s easy to feel the as if your missing out.  The fear of missing out is a very powerful emotion that will often cloud a traders judgment, and the chaise is on.  Traders will leap without looking buying positions at or near price resistance level.  Sometimes you will be rewarded for taking this risk, but often you get in right at the point where profit-taking begins.  If the futures remain at current prices, the DIA and the SPY will gap up to 50-day average resistance.  That means both indexes will be up over 17% in just five days.  Consider that as you plan the day ahead.

On the Calendar

A big day on the Economic Calendar this Thursday.  We have four important reports coming at 8:30 AM Eastern.  1. Jobless Claims – expected to rise to 229K vs. the 221K on the last reading.  2. Pilly Fed  Bus. Survey – expected to hold steady and strong at 21.0 which is said to be near capacity.  3. Empire State Mfg. – Is expecting to slow slightly from the Jan. 17.7 reading to the Feb. consensus of 17.5.  4. PPI – forecasters see overall producer prices gaining 0.4%, less food, and energy up 0.2% and trade services also up 0.2%.

At 9:15 is the Industrial Production numbers which consensus expects to increase 0.2% with capacity utilization up one-tenth to 78.0%.  The Housing Market Index is out at 10:00 AM and is expected to show steady strength but unchanged at 72.  Treasury International at 4:00 PM is not forecasted forward but tracks the flow of financial instruments into and out of the United States.  Also on the calendar are several non-market-moving reports as well as a bunch of bond events.

On the Earnings Calendar, I show just over 170 reporting results today to keep us on our toes.

Action Plan

Nice rallies across all four major indexes but only the QQQ’s have managed to cross back above the 50-day average.  Dow Futures are very strong this morning pointing to more than a 200 point gap up testing 50-day average on the DIA and the SPY.  A failure at or near the 50 SMA would set up a possible Blue Ice Failure pattern so be careful not to chase this gap up to resistance.  With any luck, the leadership in the QQQ will help lift the markets out of the danger zone.  Another positive for the market is that the VIX finally broke lower yesterday to close below a 20 handle.  Continue to expect very fast price action and watch price closely for possible whipsaw action at resistance levels.

Trade Wisely,

Doug

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