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

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