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

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

Danger still lurks.

Although short-term rally has eased tensions and provided some sweet relief, danger still lurks.  It’s so easy to become fixated on the hard right edge of the chart and getting lost in the intra-day gyrations in price.  If we take a critical look at an index entire chart, we have several important clues that should have you on the edge of your seat.  First and most obvious is that all the major indexes are in a current downtrend.  The rally is testing not only the downtrend but also some very significant price resistance levels.  Also, we are still below the 50-day average, the T-line, and that the 34 EMA is dangerously close to dropping below the 50.

Trust me I want to market to resume its uptrend as much and anyone else.  However, if I allow that bias to cloud my view of the potential dangers displayed in the chart, I’m failing as a technical analyst.  Always take the time to look at the big picture and remember Price is King!

On the Calendar

The hump day Economic Calendar has four important reports.  Inflation hawks will be keeping a very close eye on the Consumer Price Index which comes out at 8:30 AM Eastern.  The consensus is looking for a gain of 0.3% on the month but also expecting the yearly rate to slightly decline.  Also at 8:30 is Retail Sales where forecasters see an overall moderate 0.3% gain.  Then at 10:00 AM we get the Business Inventories Report which forecasters expect an increase of 0.3%.  The EIA Petroleum Status report is at 10:30 AM.  They don’t forecast this number, but the last 2-reports have shown a build in supplies, a 3^rd would begin a trend hurting oil-related stock prices.

On the Earnings Calendar, I show just about 180 companies will report results.  Make sure your check and planning for these events to avoid undue risk to your account.

Action Plan

The market spent another day chopping sideways taking a break from the huge daily price moves.  On the positive side, the bulls were able to shrug off the morning gap down and close just slightly higher.  On the negative side, the market continues to deliver triple point gaps daily and remains under price resistance and the 50-day average.  At the close yesterday, the VIX drifted just below 25 but seems stubbornly resistant to a pullback keeping traders on their toes.

The CPI this morning could be very import today to determining market direction.  A print below 2.0 could bring out the bulls while a number over 2.0 could bring out the bearish inflation hawks.  Currently, the Dow Futures are pointing to 100 point gap up, but that could quickly change if inflation raises its ugly head.  Please keep in mind that all the major indexes are below significant price resistance levels.  Which means a failure pattern near resistance is still possible which could once again inspire the bears.  Extreme caution is still warranted as we approach resistance with high volatility.

Trade Wisely,

Doug