It almost seems unfair!

The Bull run has lasted so long and has been so strong it’s almost shocking when we see that the Bears still have teeth.  It almost seems unfair to be looking so good at the close yesterday to have it fully reversed at the open today.  As an inexperienced trader, an overnight reversal is like being betrayed by a close friend, and I would take it personally.  Yesterday I suggested the market was showing some elevation stress.  As a result, I made no new trades even though there were tempting buys all around me.  Believe me; I had no idea such a big reversal move would happen overnight.  Neither I or anyone else can predict the markets next move.  However, there were clues to market stress that I mentioned yesterday.

On the Calendar

The only market-moving report on the Economic Calendar today is the weekly Jobless Claims at 8:30 AM Eastern.  With Puerto Rico hurricane still a bit of a wild card the forecasters expect a 232K print today.  After that, we get several lesser important reports as well as bound auctions and announcements.

Although Monday and Tuesday of next week have a significant number of earnings reports today is the last really big earnings day this year.  Around 500 companies are expected to deliver results today so prepare for just about anything.

Action Plan

During the night Futures took a turn for the worse, and it was looking like we could have a sizable gap down this morning.  There was a sharp recovery about 11:30 central time, but as of right now the Bears pushed back and are testing the overnight lows.  If the market were to open at this very moment, the Dow could gap down about 60 points.  As a result of the huge number of earnings report before the bell, anything is possible.

Yesterday I wrote that price action was suggesting a little stress from the current elevation.  Although the Bulls made an impressive stand yesterday afternoon, my overall assessment has not changed.  I suggest lifting your caution levels when considering new positions.  Watch for a spike in volatility be careful to avoid chasing because bullish or bearish whipsaws are possible around market highs.  With the weekend nearing after such a long and strong bullish move I will be looking to take profits more than adding new trades.  It’s been a long time since we have seen a big bearish housecleaning move.  I have no idea when it might happen, but I won’t be surprised if we see one relatively soon.

Trade Wisely,

Doug

Price Action Clues

The bullish trend is still intact but yesterday’s price action began to show just a hint of stress at this elevation.  I don’t think there is any reason for panic, but I think it would be wise to reign in trading activity just a little.  The bulk of earnings season will be over this week and yesterday made me wonder if the bullish energy with fade as well.  Please keep in mind there is nothing on the daily charts pointing to a pullback or correction as of now.  The truth is it may be nothing more than a rest before going higher, but at this elevation, I want to err on the side a caution.

What this means is I will be a little quicker to take profits, a little more cautious when adding new risk, and very focused on price action.  If the Bulls step back in, I’m more than willing to ride the wave with them, but if we slip into a choppy consolidation or pullback, I want to curtail my trading activity.  As the weekend approaches I will also be thinking of taking some profits and reducing my overall exposure.

On the Calendar

There is only one noteworthy report on the Economic Calendar today.  At 10:00 AM we get the latest reading from the EIA Petroleum Status report.  They do no forecasting on this number, but current oil price moves suggest that traders are expecting the surplus to diminish.

The Earnings Calendar makes up for the light economic day with more than 450 companies fessing up their results today.  So far earnings have produced a lot of bullish energy this quarter.  The question I have is will the bulls be able to maintain that energy when the bulk of earnings reports finish this week?

Action Plan

The market indexes continue to trend higher but appear to be showing signs of stress at this elevation.  I’m in no way suggesting the bull run is over, but I do think its time to elevate our caution level.  It may be wise to consider taking some profits, adjusting stops and slowing our buying activity.  It could turn out to be nothing more than a market rest before the bulls powering higher.  Stay focused on price action for clues.  Futures are currently pointing to a slightly lower open but with so many earnings reports that could easily change so stay on toes and prepare for anything.

Trade Wisely,

Doug

No Fear

The only thing fear this that there is no fear!  On Friday last week, the VIX hit the lowest low ever recorded by the index.  As a result, complacency is very high as money continues to rush into the market as is it can never fall again.  Trust me it will.  However, you can also trust that you and will not be able to predict the time or the event that will bring back the bears.  So the moral of the story is, don’t fight the trend AND avoid complacency.

That sounds easy, but in reality, it’s pretty difficult to do because we have to set aside our bias and shut off the noise.  What works for me is to focus on the price action.  If we give up the idea that we can predict the next move of the market and look at a chart with an unbiased eye price will almost always provide clues.  What we want, hope or believe should happen is irrelevant.  Focus on Price.

On the Calendar

On the Economic Calendar this Tuesday we get started at 10:00 AM Eastern with the JOLTS report.  With the country running at near full employment the job openings number continues to grow.  Consensus for September is expecting job openings of 6.082 million.  Janet Yellen speaks at 3:00 PM but other than that there are some bound auctions and a non-market-moving Consumer Credit report to close the day.

While the Economic Calendar is light, the Earnings Calendar is very busy with more than 425 earnings reports expected.  Earnings continue to roll out with very strong reports, but that is no excuse to be complacent.  Make sure to check current holdings as well as those you are thinking so adding to your portfolio for coming reports.  A tiny effort on our part can save us from a very bad day if a company reports poorly.

Action Plan

The SPY, DIA and the QQQ’s once again all closed at record highs.  Overnight futures were very bullish with the Dow Futures up more than 50 points.  This morning that bullishness has tempered slightly with futures mixed.  However, with so many earnings reports before the market opens anything is possible.

I will continue to manage the positions that I’m in as well as look for new long positions.  The trend is up so until that trend ends I intend to trade in that direction.  Like everyone else, I believe the market is overextended but will not try to predict a top and find myself fighting the entire market.  What I do want to fight is complacency by staying focused on price action and have a plan to avoid emotion in the heat of battle.  Believe in preparation, not luck!

Trade Wisely,

Doug