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

All Eyes on Jerome Powell

Today we get an introduction to our new Fed Chairman, Jerome Powell.  Will he be hit the ground running hawkish on interest rates or will ease into the position with a bit more dovish approach?  No matter what he says, we can expect the market to be sensitive to each of every word.  With the market now showing such bullish strength even hint of dovishness could launch the market higher.  Hawkish comments could easily have the reverse effect.

Couple that with a big day of earnings and a heavy economic calendar we should be prepared for an extra dose of volatility today.  That means the potential for fast price action and whipsaws.  Buckle up the ride could be thrilling but also very bumpy.  Remember the 400 point rally from yesterday could be just as quickly reversed.  Follow your rules and maintain your discipline and always remember that cash is position and that every day need not be traded to achieve success in the market.

On the Calendar

We get going at 8:30 AM Eastern on the Economic Calendar.  First is the Durable Goods Orders which consensus is expecting a 2.0% decline with transportation seen up 0.3% and core capital goods orders rising 0.5%.  Next is international Trade in Goods which is, of course, running in a deficit however it is expected to narrow with consensus expecting 71.3 billion vs. 72.3 billion in December.  Also at 8:30 AM and 10:00 AM, our new Fed Chairman Jerome Powell will testify in Congress.  The market could be very sensitive to anything he says.  At 9:00 AM is the S& P CoreLogic Case-Shiller which forecasters see as rising 0.6% in December with a yearly increase seen at 6.3%.  There are several other economic reports that are unlikely to move the market as well as a couple of bond events.

On the Earnings Calendar there more than 240 companies expected to report today.  Stay on your toes.

Action Plan

Yesterday I mentioned to make sure and not chase but watch for the follow through bullish price action before entering anything.  After the morning pop, the indexes did pause and pull back slightly before the bulls began a rip-roaring party that at one point had pushed the Dow up more than 400 points.  It’s not all that surprising after a move like that the current Dow Futures are suggesting a gap down but only of about 50 points thus far.  However, there is a big economic reports, a slew of earnings and our new Fed Chairman speaking that would shake this up before and after the open.

With the major indexes now solidly above the 50-day average a pullback to test it as support is not out of the question.  On the other hand, if yesterday’s strong bullish attitude can continue to push us higher with little assistance from good earnings news and Jerome Powell not rushing into rate increases.  It could be a very bumpy ride today with so much in the works.  Remember what goes up can come down just as fast.  Make sure you have an exit plan on all trades to either take profits or cut losses if a reversal does develop.

Trade Wisley.

Doug

Be careful not to chase.

Another day and yet another triple point gap indicated by to the Dow Futures.  Be careful not to chase!  One of the many issues I struggled with as an inexperienced trader was getting caught up in the drama of the market.  I would watch all the financial news with the exaggerated headline graphics and talking heads touting their market greatness and lose all sense of discipline.  Que the dramatic bumper music.  I would see the futures pointing to a big gap up and jump headlong into the shark-infested waters.

After getting my fair share of shark bites and losing more capital than I care to remember if finally learned a few very painful lessons.  Trading plan and trading rules are there to protect you from you.  However, they only work if you learn to ignore the drama and develop the discipline to follow them.  After 13 years of supporting my family as a full-time trader, I can confidently say it’s my discipline to follow my plan that has made me successful.  Are you following your plan or are you allowing the drama of the market control your destiny?

On The Calendar

The last week of February begins with a busy week on the Economic Calendar.  The very important New Home Sales number come out at 10:00 AM Eastern as is expected to weaken but matain its strong rising trend with at print of 600K.  At 8:30 AM is the Chicago Fed National Activity Index and at 10:30 comes the Dallas Fed Mfg. Survey, but neither is expected to move the market.  We round out the today’s calendar with three bond related events.

We also have another busy week on the earnings calendar as this earnings season continues to drag forever.  Today there are over 12o companies expected to report earnings today.  Always be prepared.

Action Plan

On Friday afternoon last week, the price action started to indicate improvement and give the appearance of holding support.  The Dow managed to close above the psychological 25k level as well as hold above the 50-day average.  The SPY also showed bullish strength above the 50-day average, and even the beleaguered IWM managed to close a few ticks above this important average.  The QQQ continued to matain market leadership and closed Friday within striking distance of all-time resistance highs.

Unfortunately, it looks as if this gap-happy market will continue this morning as with the Dow Futures suggestion it will open about 150 points above Friday’s close.  With VIX pulling back to test price support and the 50-day average be careful not to get caught of in morning drama and chasing into the gap.  Keep in mind that price volatility remains high and the big intraday reversals we experienced last week are still possible.  Stick to your plan and stay disciplined to your rules.

Trade Wisely,

Doug