Will resistance hold or break?

Yesterday’s bullish move looks as if it will be followed by another gap up bring the both SPY, QQQ’s right back to last weeks resistance.  The question is, will resistance hold, stopping the Bulls advance or will it break?  To say the least, this kind of price action is tough to trade, and what makes it worse it’s dripping with emotion and drama.  There is an old saying that, Fortune favors the bold.  For some that’s true, but history rarely writes catchy sayings for those that lost their heads during their bold attempts.  Keep in mind it’s not necessary to trade every day to be successful.  Choose your battles wisely.

On the Calendar

We begin Tuesday with the biggest report of the day on the Economic Calendar at 8:30 AM Eastern.  Retail Sales number have disappointed all year but today consensus expectations for today are looking for a 0.3% vs. the 0.2% decline last reading.  Also at 8:30 we will hear from the Empire State Mfg. Survey and Import/Export Prices.  Consensus for the manufacturing number is to remain steady at 9.8. Import/Export prices are expected to increase by 0.1% vs. the 2% decline last month.  At 10:00 AM both Business Inventories and Housing Market Index release results.  Forecasters are calling for 0.4% gain in June for Business Inventories and a 65 reading in the Housing Index.  The Treasury International Capital number rounds out the day at 4:00 PM.

On the Earning Calendar, there are more than 30 companies reporting today.  Retail numbers will be the theme most of this week.  Home Depot reported very early this morning beating both the top and bottom line as same store sales increased, but as of now, investors seem unimpressed.

Action Plan

The Bulls made a strong showing yesterday gapping the market higher and managing to hold it above the gap all day.  Currently, it would seem the Bulls would like a repeat performance with the Dow futures suggesting another gap up of nearly 50 points.  That brings the SPY and the QQQ’s right back up into the congestion zone they were having trouble with as the Dow pushed higher just a week ago.  If you’re confused as to what to do, you’re not alone.  Price action such of this is very difficult to trade.  Traders that step in boldly might get richly rewarded however they may just as easily punished for chasing into price resistance.  Tough decisions to be sure.

Over all trends continue to be up so to follow my rules and trade with the direction of the market I will be looking for long trades.  However, I will not rush in after another gap.  I will wait and watch and enter only if the timing is right and the price action confirms.

Trade Wisely,

Doug

Big gaps, high emotion – A dangerous combo.

The sell off last week spiked the VIX more than 65% suggesting elevated volatility and challenging price action ahead.  A Monday morning professional gap up of nearly 100 points only increases trader emotions.  For years I made the mistake of getting caught up in the drama of this kind of price action.  I would chase it down and chase up thinking I was missing a big opportunity to make money.  After years of poor results, I finally wised up and realized that often less is more.

What I mean by that is commonly traders get caught up in the idea if the market is open then they have to be trading.  That is just not true!  The best traders in the world watch and wait much like a sniper patiently for one shot.  I found that if I could avoid the drama, watch, wait and plan I traded less but made a lot more money.  My win/loss ratio went way up, and my trading account started to grow rather than the endless Yo-Yoing I had been experiencing.  When the markets become volatile, it is easy to over trade and get caught up in the drama.  Not every day is a good day to trade if you want to maintain your edge.  Always remember sometimes less is more!

On the Calendar

The Economic Calendar decided to extend the weekend by largely taking Monday off.  Other than a bill announcement and a couple of bill auctions there is nothing on the calendar today.

Today is the last big earnings day for this quarter with about 220 companies reporting results.  Earnings have been a major source of inspiration for the bulls this quarter.  I will be interesting to see how the market responds as that energy supply begins to burn out.

Action Plan

As anticipated, the Korean worries prevented the Bulls from mounting a rally on Friday.  The good news is that the Bears were also unsure about the weekend and most of them seemed to join the Bulls in taking the day off.  Only the QQQ managed to end the day with a respectable defense of the 50-day moving average while the SPY closed below the 50 for the 2^nd day in a row.  With the threat to the weekend now past the Dow Futures are currently pointing to a huge gap up open of nearly 100 points.

Although the gap up this morning is not that surprising, it’s also something that I don’t want to chase.  Keeping in mind the overall price pattern the morning gap up will still be under significant price resistance on the SPY, QQQ, and IWM.   Always keep in mind that a gap up the perfect setup for a pop and drop or whipsaw price action.  I refuse to chase, so I will be standing aside for 20 to 30 minutes allowing the price action develop.  If the Bulls step in supporting the gap with actual buying then and only then will I consider new long positions.  Until that time I will carefully manage the positions that I held over the weekend that hopefully will benefit from the bullish open today.

Trade Wisely,

Doug

Will Korean tensions keep the Bulls away?

With such strong sell off it would not be unreasonable to think a bounce is in the cards for today.  I would agree however the Korean tensions could make it difficult for the Bulls to buy this dip.  I can tell you that see no good reason to add risk going into this weekend and I suspect many will have the same inclination.  That’s not saying we can’t or won’t experience a relief rally.  I’m only suggesting the possibility exists that it may be a lackluster bounce or that it may not occur all.  Trying to predict a bottom is just a futile and dangerous as it is trying to predict the top.  Wait for proof in price and then react unemotionally with a well thought out plan.

On the Calendar

The Consumer Price Index tops the Economic Calendar today coming out before the market opens at 8:30 AM eastern time.  The consensus is only expecting a gain of only 0.2% with the yearly rate slipping to 1.8 from 1.9 on the last reading.  Declines in cell phone services and fundamental prices including housing are the culprits pointed to as the reason growth in this number remains weak.  At 9:40 AM and 11:30 AM we have Fed Speakers rounding out the day.

The Earnings Calendar will not begin to lighten up dramatic with just under 70 companies expected to report their results today.  At the close yesterday, NVDA topped estimates, but the stock sold off sharply and is indicating a 7% gap down this morning.  That will not be helpful to an already weakened QQQs as we head into the weekend.

Action Plan

The follow-through sell-off yesterday created some significant psychological damage in the indexes.  The SPY, QQQ’s and IWM have also suffered significant technical damage cutting through the 50-day moving average.  Even more damaging is that the SPY broke the uptrend that began in early 2016.  The IWM being the weakest of the indexes fell all the way to the 200-day moving average and is currently indicating it will gap below it at the open today.

Adding insult to injury, the futures are again suggesting a small gap down at the open.  Normally after a sharp selloff such as this, it is reasonable to expect a bounce in price.  However, as we head into the weekend the tensions growing in North Korea, traders may prefer to avoid the risk.  I for one will not be looking for new positions today as I view the weekend risk simply too high for my taste.  Having already trimmed my portfolio ahead of this sell off I will sleep well this weekend.  The market will be open Monday, and there will be plenty of opportunities made available.  Of course, I will be closely monitoring the positions I continue to hold and plan to carry through the weekend.

Trade Wisely,

Doug