The Bears delivered technical damage.

Although the bears delivered technical damage to the index charts overall supports held as did overall trends.  Ugly, yes but not a game changer as of now.  The emotional and psychological damage may turn out to be the most important damage created yesterday.  After getting their hands slapped several times trying to reach out for new highs, the Bulls may be a little hesitant to try it again without a little rest.  On the other side, the Bears may have become a bit more emboldened seeing an opportunity to test lower levels.  With all the uncertainty surrounding Noth Korea and Hurricane Irma swirling off the coast of Florida I think should plan for an extra dose of volatility.

On the Calendar

We get going this Wednesday on the Economic Calendar with International Trade at 8:30 AM Eastern.  Forecasters see this most important number of the day widening the trade gap to $44.6 billion vs. $43.6 on the last reading.   At 9:45 AM PMI Services which is the least important number of the day, but forecasters expect it to hold at a strong 56.9 level.  At 10:00 AM we get a reading on ISM Non-Mfg Index.  ISM issued a surprise drop in the index as growth in new orders declined.  However, forecasters expect a bounce back this month to 55.8 vs. 53.9.  The Federal Beige Book rounds out the calendar at 2:00 PM.  It is very unlikely for this report to move the market as a general rule.

It is still important to stay on top of your portfolio management with about 50 companies expected to report earnings today.  Don’t rely on luck, be prepared with a  plan.

Action Plan

Yesterday the uncertainty of North Korea was ramped up as the path of hurricane Irma now has the Florida coast in its path.  Irma has become one the strongest storms ever recorded in at see with sustained winds of 180 MHP.  Currently, it’s Category 5 storm with current projections that it still be a Cat. 4 by the time it makes landfall this weekend.  Of course, it could change course, but as of now, the uncertainty is not helping the market at all!

As bad as yesterdays move was an objective look at the index charts show that the DIA, QQQ, and the SPY remain above the 50-SMA.  They are also still in an overall uptrend, so I see yesterday as a warning shot across the bow but not a game changer just yet.  Having said that yesterday left behind some technical damage that may take some time to repair.  The big bearish candle left behind suggests will likely see a lower low in the near future.  Because of the very short term oversold look of yesterdays move a bounce, or at a minimum, resting seems possible this morning.   The VIX experienced a big spike up yesterday so we can expect some additional volatility.  I suggest it would be wise to exercise additional caution.  New or inexperienced traders should stand aside or perhaps practice in a paper account rather than engage in this battle.

Trade Wisely,

Doug

Uncertainty and Volatility

We have an up trending market that displayed a lot of bullish price action last week.  On the other hand, we have a North Korean leader playing with nukes and acting like he wants to pick a fight.  Mix in a President that has a Twitter account, that he’s not afraid to use and we end up with a lot of uncertainty right at the market highs.  Uncertainty and volatility are the likely results.  All weekend I have seen people trying to predict what happens next.  Some are claiming the market will ignore North Korea and we are going to the up.  I saw one ridiculous prediction that the Dow was going to 50,000.

Then there are the Gloom and Doomers predicting that the end is near and the market is destined to collapse.  Run for the hills!  There are others that suggest the market is setting a trading range that it could be in for years.  For what it worth I think predicting is a waste of time.  Predicting creates a bias, and bias can blind you to the clues that price is providing.  Predicting the market is a lot like trying to rope the wind.  It’s a lot of effort for nothing.  Focus on price and follow it when it shows a direction.

On the Calendar

This short week Economic Calendar begins and pretty much ends with Factory Orders at 10:00 AM Eastern.  Forecasters see a decline in Factory Orders of 3.1%  even though most of the underlying data would suggest strength.  An interesting discrepancy but the Factory Orders number is normally not expected to move the market substantially.  We have three Fed Speakers today and some bond auctions to round out today’s calendar.

There are on quite 30 companies on the Earnings Calendar today.  A quick look through them and I don’t see any market moving reports.  However, if you happen to hold a company that surprises you with a report because you failed to check it can be very damaging to your account.  Make sure always to check and be prepared with a plan around an earnings date.

Action Plan

Friday price left us with a little indecision while it rested ahead of the 3-day weekend.  This morning we have a bit of a conundrum.  Markets displayed incredible bullishness in the rally off the lows last week.  Both the QQQ’s and the SPY managed to break out while the DIA and IWM still have work to do.  Toss in the very risky game the North Korean leader is playing, and we end up with with a big pile of uncertainty.  I would like to think cooler heads will eventually prevail but the market hates uncertainty.  Dow futures are pointing to a gap down of more than 60 points at the open.  If the Bears take over, we could see failure patterns develop at market highs.  Not good!  If the Bulls step up to the plate and defend, we could strength in the rally.

The big question is, are you willing to speculate that you know the direction and willing to risk capital?  For me, the answer is no.  I will stand aside from entering new trades until price shows me clues of direction and then I will follow the winning team with higher probability trades.  We don’t have to take every day to be successful traders.  Also, we don’t have to pick exact tops and bottoms to be profitable.

Trade Wisely,

Doug

New Record Highs in the Tech Sector.

With an impressive display of strength, the Bulls managed to make new record highs in the tech sector once again.  It’s as if North Korea disappeared and the devastation on the southern coast never happened.  The Bulls are large and in charge as we begin September.  Futures are suggesting yet another gap up, and the VIX is once again testing historical lows.  As we say all the time, “Trade with the trend until the trend ends” and the trend except for the IWM is up.  With a gap at or near new market highs always watch for possible whipsaw price action.  I’m not saying it is, but it’s the perfect place to set a bull trap much like the gap down on the 29^th turned into a Bear trap.

On the Calendar

The Friday Economic Calendar kicks off with the granddaddy report of the month.  Before the market opens at 8:30 AM Eastern the Employment Situation Report is released.  Forecasters are looking for this number to cool off to 180K vs. the 231K reading last month.  At 9:45 we get the PMI Mfg Index which last month was 53.3, but there seems to be no forecast for this month.  At 10:00 AM the ISM Mfg numbers is the other big number today that could move the market.  The ISM August consensus is calling for continued strength at 56.6 vs. 56.3 in July.  Construction Spending and Consumer Sentiment is also at 10:00 AM today.  Construction Spending is expected to bounce higher today.  The consensus of Consumer Sentiment suggests it likely diminishes slightly to a 97.4 reading.

On the Earnings Calendar, there are less than 20 companies expected to report today.  I would expect none of them to be market moving, but please continue to check your holdings as part of your morning prep.

Action Plan

With three days of amazing bullish strength, the QQQ set a new record high yesterday with buying right into the close.  The SPY was also very impressive however it continues to remain under price resistance although very near new highs.  The DIA decided to take a siesta yesterday after gapping up choosing to just lounge around in a small chop zone.  And although the IWM still has a lot of recovering to do it also pushed up strongly to test resistance levels.

With the Bulls continuing to push on the futures, it is pointing to a gap up of more than 50 Dow points.  Personally, I don’t want to chase the gap at or near market highs.  I will focus on the price action after the open looking for follow through buying before deciding to add new positions.  Because this is Friday and we have had an amazing reversal I will be planning to take some profits today before the weekend.  With the Bull running hard the VIX has dropped back into the zone of historic lows.  When there is no fear, big moves are possible but also know they can also be very volatile.

Trade Wisely,

Doug