Maintain an Edge.

My knowledge of technical analysis and reading price action is what gives me an edge in the market.  To make a living as a full-time trader, I have to recognize when I have an edge and when I don’t if I want to make consistent profits.  We all know that individual earnings are unpredictable.  When we get them in groups of 500, they can easily swing the entire market before the open or after it closes.  That means to trade today I have to be willing to give up my edge, toss caution to the wind and embrace gambling.  I choose to maintain an edge!

I’m very light in my accounts and don’t expect to add new risk today.  With so many unpredictable earnings reports I have to forfeit my technical analysis edge to trade today.  Gambling has never been a winning strategy for me.  When my edge is gone, I prefer to stand on the sideline watching the battle and protecting my capital.  Buckle up friends; it could be a bumpy ride!

On the Calendar

One hour before the market opens the Economic Calendar get the day going with International Trade and the weekly Jobless Claims reports.  International trade is expected to widen the deficit in September with a consensus reading of $63.9 vs. $63.3 billion.  Also at 8:30 AM Eastern the weekly Jobless claims were expecting 235K only slightly higher than the 222K last week.  At 10:00 AM Pending Home Sales number is expected to rise 0.4% after last months 2.6% drop due to hurricane impacts.  There is a Fed Speaker at 10:30 AM as well as a few lessor reports and bond auctions.

Today is a huge day on the Earnings Calendar with more than 500 companies expected to fess up to last quarters results.  There are a lot of potential market-moving reports today with the likes of GOOG, MSFT, INTC, WDC, WYNN, AAL, BMY, COP, MO just to name a few.

Action Plan

Yesterdays light sell-off is being met this morning with futures are currently pointing to a slight bounce back at the open.  With so many companies reporting the bulls and bears will have a lot to fight about in the next 2 hours before the market opens.  Anything is possible.  Then after the market close will some really big hitters report, so no matter what happens during the day, it could all change in the after-hours session.

Trade Wisley,

Doug

A case for caution.

Earnings season creates lots of drama, intrigue, and hype as well as the dream of striking it rich by picking the big winner.  It’s easy for even experienced traders to get caught up in the gold rush that earnings season creates.  It’s the same business plan that built Las Vegas.  Trading an earnings event is gambling pure and simple.  Anything is possible, and I think a good reason to build a case for caution.

Successful trading is not a sprint; it’s a marathon that requires careful planning and endurance.  We all want more but the allure of the big win is often the temptress leading us to slaughter.  With more than 800 companies reporting the next two days anything is possible and could make for violent market action.  I have learned over the years (often the hard way) I don’t have to trade every day to be successful.  As technical traders, we give up our edge by over trading earnings.  Think about it.  If anything is possible, isn’t that gambling?  How can technical analysis give us much of an edge if anything is possible?

On the Calendar

The hump day Economic Calendar has three potential market-moving reports.  At 8:30 AM Eastern is the Durable Goods Orders which consensus expects a gain1.0% overall.  Ex-transportation is seen as up 0.5% and core capital goods also increasing 0.5%.  At 10:00 AM we get the New Home Sales report which is expected to moderate to a 555k annualized rate in September vs. the 560K in August.  Then at 10:30 AM is the EIA Petroleum Status Report.  There are no forecasts for petroleum, but a quick look at oil stocks would suggest traders are bullish and expecting demand to continue to lower national supplies.

The earnings calendar has more than 300 companies reporting today.  If you need an example as to why you need to be aware of earnings reports take a look at CMG, JNPR, and AMD this morning.  These companies reported after the close yesterday.  Those traders will be singing the blues with big losses in their accounts today!

Action Plan

Although the DIA set new records yesterday on the back of great earnings reports from MMM and CAT, the other indexes took a little siesta from the rally.  Futures are pointing to a flat open currently but with so many companies reporting earnings today that could obviously change in very quickly.

The overall trends are bullish, but for most traders, I think it’s time to exercise a little caution.  With so much data coming out the next couple days could be very challenging.  Big gaps and whipsaw price action can damage the accounts of even the most experienced traders.  Try not to get caught up in the drama and hype surrounding earnings.  Remember we want Quality over Quantity and not every day has to be traded to be successful.

Trade Wisely,

Doug

Anything is possible.

With the market having risen so much so fast it’s easy to assume that the market is overbought and thus must go down.  As a result, traders will try to predict the roll over failing to consider the extreme bullishness of this rally and the huge number of earnings reports this week.  The fact is, Anything is Possible!  Good earnings reports could easily extend this bull run higher.  If they disappoint some violent moves lower are possible.

Yesterday the indexes left behind bearish patterns suggesting lower prices to come but the futures are pointing to a gap up open?  I expect this will likely be a very challenging market for next several days with lots of premarket gaps and intraday whipsaws possible.  Try to avoid predicting and attempting to apply your personal market bias and just follow price when it provides good entry signals. Also, keep in mind that successful trading does not require you to trade every day. Cash is a position that is often forgotten and underutilized.

On the Calendar

The Tuesday Economic Calendar kicks off at 9:45 AM Eastern with the PMI Composite Flash.  The October Composite Index expected to remain unchanged with a comfortably strong reading of 54.8.  Forecasters are expecting the manufacturing PMI to come up to 53.3 vs. 53.1.  The services PMI has been the leader with a 55.3 reading in September which is expected to pull back slightly to 55.2 for October.  FYI, PMI stands for Purchasing Managers’ Index.

There will lots of earnings news affecting the market today will about 190 companies reporting.  Just a few to take note of; MCD, CAT, LMT, GM, JBLU, BIIB, MMM, GLW, SHW, AMTD, LLY, PHM plus much more.  Make sure you are checking reporting date of companies you hold and those you are interested in buying.  Preparation is very important.

Action Plan

For the first time in several weeks, we saw a little profit taking in the market as the day wore on yesterday.  The DIA left behind a Dark Cloud Cover pattern while the SPY dropped in a full-on Bearish Engulfing Pattern.    The QQQ also printed a Bearish Engulfing, but it actually finished the day looking more like an Evening Star Pattern.  The IWM remained in its tight range consolidation but also printed an Evening Star type pattern.  With all these bearish patterns does not mean the market has to go down?  Nope!  Let’s keep in mind the sheer momentum of this rally and the fact that huge numbers of earnings reports are rolling out.  Anything and I mean ANYTHING, is possible!

Futures have been climbing all night and as of now suggest about a 50 point gap up in the Dow.  Possibly another short squeeze like last Thursday?  Your guess is as good as mine.  I will first manage current positions and but will plan to wait until after the morning rush before looking for new trades.

Trade Wisely,

Doug

A huge week of market events.

With seven potential market-moving economic reports and well over 1000 earnings reports, this is a huge week of events.  For new or inexperienced traders, weeks like this can be very challenging because volatility can suddenly shift market direction.  For the most part, I avoid earnings reports like the plague.  No matter how good a company may seem to play the earnings report is dangerous.  All of your technical analysis skills are useless because anything is possible when a company reports.

Times of volatility will also test your greed emotion to the max.  When your right on the direction and the stock move quickly in your direction, it’s wise to consider scaling out of the trade or exiting it all together.  Stock and quickly shift when there is so much news rolling out.  Also, remember gaps are gifts and a great time to go to the bank with at part or all of the position.  Don’t allow greet to prevent you taking a profit.

On the Calendar

The Economic Calendar starts off slow but has several very important reports during the week and finishes up with the market moving GDP numbers.  At 8:30 AM this morning we get the Chicago Fed National Activity Index.  It’s very unlikely to move the market, and I only mention it because other than that all we have is some bond auctions to round out the day.

The Earnings Calendar ramps up this week is likely to create some volatility as big newsy reports roll out.  Please keep in mind big market gap up’s and gap downs are common so plan your risk carefully.  Today is the lightest day on the calendar with just short of 80 earnings reports.

Action Plan

Having taken several trades off last Friday, we enter the market today light in our accounts.  Considering how stretched the market is I’m comfortable having less risk.  The futures are of course pushing for a higher open with the Dow right now showing a 20-point gap up.  Just like on Friday don’t be surprised to see whipsaw price action after the open.

I plan to give the market 15 to 30 minutes after the open to see there are real buyers interested at these levels before looking for new trades.  If the earnings reports continue to roll our positive, there is every reason to believe the market could still move higher.  I know logic says this rally can’t continue forever, but those that predict can easily get run over just like the those that got short last Thursday morning.  Stay with the trend until price tells you differently.

Trade Wisely,

Doug