Can this Bull Run continue?

As this week trading week comes to a close, the majority of traders have just one question on their mind.  Can this Bull Run continue?  Common sense would tell us the odds of a pullback after seven straight days of new records is pretty high.  However, the strength of the run ahead of earnings season already defies logic.  I say that only to remind you that predicting what a market may or may not do is an exercise in futility.  Anything is possible!  The best we can do as traders is have a plan with a set of rules to manage our emotions.  As a result of my rules made it necessary for me to lighten up my risk to the market by taking some profits.  Logic says a pullback is likely, but the price action has no hint of a pullback as of now.  If there are more buyer than sellers, then the market could still move higher!  What matters is that you are managing you and remembering that this is a business.

On the Calendar

On the Economic Calendar today we have the Mr. Big report at 8:30 AM with the Employment Situation.  As this report will incorporate the effect of the hurricanes, the consensus estimates are all over the place.  Essentially the best they can do is guess.  For example, the nonfarm payroll expects 100K, but the consensus ranges between Zero and 140K.  There are two reports unlikely to move the market, Wholesale trade at 10:00 AM and Consumer Credit at 3:00 PM.  There are 5 Fed Speakers on the calendar today.

On the Earnings Calendar, there are only eight companies reporting today.  I do not see any earnings reports that are particularly notable.

Action Plan

After the news reported a successful vote in Congress allowing the Tax Plan Process to move forward, the Bulls came out in force to express their support.  As I mentioned above, I reduced some of my risk to the market closing part or all of a few positions to capture gains ahead of the weekend.  The VIX made a new closing low yesterday below a 9-handle.  Truly amazing!  I think it would be wise to guard yourself against complacency.

Once again I will be more focused on taking profits today, but I will not rule out the possibility of new trades.

Trade Wisely,

Doug

Unable to find profit takers.

Although the market appears to be quite extended, its unable to find profit takers just yet.  The VIX continues to dance near historic lows but as of yet unable to make a run for a new low print.  Perhaps the market is waiting on all the Fed speak today or more likely focused on the Employment Situation number that comes out Friday morning.  None the less I will continue to be very focused on price action and prepared to take profits ahead of the weekend if weakness shows itself.  With an extended market and the weekend near, I will need to uncover a nearly perfect trade setup for me to buy additional risk.

On the Calendar

The Economic Calendar events of interest begin at 8:30 AM Eastern.  International Trade forecasters are calling for a narrowing of the trade gap this month due to the hurricane effect.  August is expected to come in at $42.5 vs. July’s 43.7 reading.  A narrowing trade gap should be of benefit to the 3^rd quarter GDP.  Also at 8:30 AM is the weekly joblesss claims and is expected to come in with a reading of 265K vs. 272k last week.  There are 4 Fed Speakers on the calendar today with three of them speaking in rapid succession beginning at 9:15 AM.  At 10:00 is Factory Orders which is expected to rise 1% in August vs. the 3.3% decline in July.

On the Earnings Calendar, there are only 14 companies set to report.  Of note are reports STZ before the open and COST after the close today.

Action Plan

The incredible strength of the Bulls kept profit taking in check even though it’s quite extended.  The promise of a tax plan continues to inspire investment no matter the price or valuation.  Also, keep in mind that earnings season will begin soon and there seems to be tremendous optimism of strong reports.

With the market continuing to show enough strength to hold up I maintained all the current positions.  As a result, I again will focus on price action and prepare to take some profits before the weekend if necessary.  As we wait for the big employment number Friday, it would not be a surprise to see choppy light volume action again today.

Trade Wisely,

Doug

Bullish But Stretched

Bullish But Stretched

There is no doubt that the Bulls are firmly in control as this rally continues to set new records daily.  Both the DIA and the SPY showing impressive strength while the rally in the IWM has been nothing short of incredible.  I think even the most enthusiastic traders would have to admit at this point the market is Bullish but Stretched.  Could we continue going higher?  Yes, we absolutely could, but the likelihood of a profit-taking pullback is growing.  It’s my opinion that trying to enter this run now is like a dog chasing a loaded truck and at high risk of being run over.

On the Calendar

Before the market open, we have the ADP Employment report on the Economic Calendar at 8:15 AM Eastern.  The ADP has been missing the actual number for months, and I think has begun to lose credibility with traders.  The August ADP was 237K while the actual came in at 165K.  Obviously a huge swing and miss.  The September ADP is looking for 140K.

At 9:45 AM we get a reading form PMI Services, but the more important number is the ISM Non-MFG Index at 10:00.  The ISM forecasters are calling for the September number to come in at 55.5 vs. the August 55.3.  At 10:30 AM is the very important EIA Petroleum Status Report.  The current rally in oil stocks would suggest the market is expecting further declines in supplies.  We have a Fed speaker at 3:00 PM and then the Fed Chair speaks at 3:15 today.

Action Plan

Currently, the futures are suggesting a flat to slightly lower open this morning which should not be a big surprise after such a strong run.  I believe the market could begin to show some stress and as a result, profit-taking could begin at any moment.  Please understand I am in no way shape or form suggesting bearishness because there is no evidence of that in the charts.  The VIX moved slightly higher yesterday even as the overall market us rallying.  That’s odd but could be a small clue to the stress I mentioned above.

My focus as always will be on the price action, and I will be much more inclined to take profits today rather than entering new positions.  I love selling into strength!  Like the song says, know when to hold em, know when to fold em, know when to walk away and know when to run.  I think is time to consider putting some money in the bank and walk away from the table for just a little while.

Trade Wisely,

Doug