Bulls and Bears in a dead heat at resistance.

At the open yesterday, it appeared that the Bears were taking control, but Bulls fought back with equal vigor.  As a result, the day ended with the Bull and Bears locked in a virtual dead heat.  All the major indexes, however, remained under resistance and short-term downtrends remain in tact.  A stalemate just below resistance is not the place to be actively adding risk.  Always remember anything is possible and don’t assume you can predict the outcome.  If you do decide to trade, I suggest keeping positions smaller than normal until you see the Bulls gaining the upper hand.  Also, have a plan to protect current profits and cut losses quickly if the Bears gain the upper hand.

On the Calendar

We kick off the Thursday Economic Calendar with the Weekly Jobless Claims number at 8:30 AM Eastern.  Normally we would have seen an increase in Jobless numbers this time of year due to the annual auto retooling.  However, this year claims have held steady at historic low levels.  Forecasters are expecting to see an increase this week to 237K vs. 232K on the last reading.  At 10:00 AM we get a reading from Existing Home Sales which are expected to rise to 5.565 million annualized rate vs. the 5.520 in the last report.  After that, we have a few reports that are very unlikely to influence the market and a bunch of bill/note announcements.

On the Earnings Calendar, we have nearly 80 companies expected to report today.  Retailers play a prominent role today with reports from ANF, BURL, DLTR, FLWS, and SHLD all reporting before the bell.  It’s been a rough quarter for retail so let’s hope we can begin to see that trend change today.

Action Plan

After the morning gap down the Bull attempted a rally but near resistance levels, they seemed equally matched by the Bears.  Sideways choppy price action most of the day was the result.  Resistance levels continue to hold as does the newly developed technical downtrend.  Currently, futures are pointing to a slightly higher open, but as of now, it appears to be less than yesterdays highs.  Perhaps today’s economic and earnings data will provide some directional inspiration after the open.

Currently, I am holding some nice gains in several positions and yesterday during the daily live session I picked up a few DIA and SPY puts.  Please understand I am not trying to predict the market is about to fall with the put purchase.  I am merely adding a little hedge to lower my long exposure to the market.  As we approach the weekend, I will have a focus on taking some profits.  With the overall market testing resistance, I will also be very focused on price action.  I want to be prepared to act if the Bulls break through resistance or if the Bears gain the edge on this battle ground.

Trade Wisely,

Doug

Relief rally, not a game changer yet.

Yesterday it was nice to have such a strong bullish move and relieve some of the bearish pressure.  Unfortunately, the relief rally was not a game changer.  The indexes closed the day below resistance levels and continued to remain under the current downtrends.   The Bulls still have a lot of work to do if they are to regain control and I suspect the Bears still have some fight in them.

A mistake I used to make was to focus too closely on the hard right edge of the chart.  Yesterdays, bullish move would have me tossing caution to the wind, and I would buy stocks with both hands severely over trading the market condition.  If the market turned, I would suffer big losses damage not only my account but also crush my confidence as a trader.  My suggestion, if you do trade, consider smaller than normal positions to control the risk.  Also be mentally prepared to exit trades quickly should the market begin to turn against you.  Be willing to take small gains and cut off losses quickly if you suddenly find yourself on the wrong side of the battlefield.

On the Calendar

The hump day Economic Calendar kicks off at 9:45 AM with the PMI Composite Flash report.  The consensus is expecting a moderate but constructive growth with services continuing to outpace manufacturing.  At 10:00 AM we get the latest reading on New Home Sales which forecasters are expecting to remain flat at the July 610K print.  10:30 AM the very important EIA Petroleum Status Report.  The last reading showed a decline in inventories, but crude continues to struggle under selling pressure.  There is no forecast for this number, so all we can do is wait and hope it will continue to decline and supporting prices.

The Earnings Calendar has just over 50 companies reporting 3^rd quarter results.  There are several details in the list today with LOW being the most notable and heavily watched.  LOW will report before the bell.

Action Plan

Yesterday all the major indexes caught a relief rally that was quite strong and leaving behind an open gap.  The DIA, SPY and QQQ’s, all left behind a candle pattern loosely interpreted as a Morning Star.  As good as that would seem the indexes are still not out of danger.  First, this pattern requires follow-through. Price action to be valid.  Secondly, all the indexes closed below. Short-term down trends as well price resistance.  The questions now, will the Bulls have the moxie to push through the resistance?  I suspect the Bears will have something to say about that mounting a defense.  It should be an interesting battle.

Currently, the futures are pointing to a lower open which is not a surprise after such a big move.  There are a lot of good charts flashing buy signals after yesterdays move.  While I am long the market, I want to remain very cautious.  For me, that means I want to be careful to not over trade during this market condition.  I will normally begin with smaller than normal positions to reduce my risk.  I will also be prepared to take any profits much faster should the overall market show clues of failure.  If the Bears happen to regain control, a very quick sell off is possible, so plan accordingly and remain focused on the price action after the open.

Trade Wisely,

Doug

Can the Bulls repair the technical damage?

While many traders are focused on the what will happen today, I am honestly more concerned with the overall technical damage in the charts.  Today we may bounce, but the big questions are will the Bulls have the energy to repair the price damage.  If we do rally, I will be keenly focused on the on the price action as we approach resistance levels.  In my heart of hearts, I want the Bulls to remain in control and buy the dip, but I won’t risk my money on hope or guesses.  I will need to see proof, and that may take a little time to develop.  Twenty-seven years experience has taught me that there is no need to rush.  If I can control my emotions, wait and watch, I get better trades, and my win/loss ratio can continue to average around 70%.  You don’t have to trade every day to be a successful full-time trader!

On the Calendar

Tuesdays Economic Calander is another very light one.  At 9:00 Am Eastern is the FHFA House Price Index followed by the Richmond Fed Manufacturing Index at 10:00.  Both are really not-consequential reports having little chance of moving the market.  Rounding out the calendar day is a 4-week bond auction.

Over 60 companies grace the Earnings Calendar today with their quarterly results.  INTU, MOMO, and TOL, CRM and AABA may be extra notable for some of the members. Make sure you are checking the reporting date of all companies that affect your portfolio.

Action Plan

As I was out playing with telescopes and photographing the eclipse yesterday, I was not following along intraday as normal.  Although the DIA failed the 50-day average during the day making a new low the Bull managed to stage enough of a rally to recover price and close above this important support level.  The SPY, QQQ’s and the IWM all staged a late day rallies but remain under key moving averages.  I suspect the market will bounce and the current futures are pointing to a slight gap up.  However, other than the DIA the indexes are in a precarious position.  Any rally back toward resistance levels could produce failure patterns continuing the current downtrends.

As you all know, I try to avoid prediction of any kind.  I simply want to follow price when evidence of direction supported by actual buyers or sellers.  As a result, I will likely give the market 20 to 30 minutes to digest the morning rush before making any trading decisions today.  Of course, the top order of business is to manage current positions protecting profits and trading capital.

Trade Wisely,

Doug

The Bears have their nose in the door.

With the follow through selling on Friday, it would appear the Bears have their nose in the door and smell a tasty opportunity.  The Bulls will have their work cut out for them with the significant technical damage that has now occurred in three of the major indexes.  A short-term oversold condition exists, and a bullish bounce is likely to begin soon.  However, I would not assume the down trend is over.  Any bounce or rally back to resistance could set up more selling.  If you do decide to trade, keep that in mind as you plan the position.  Technical damage such as this not likely to be repaired quickly.  There is no rush.  Wait for a defensible entry with solid evidence that the bulls are regaining control before risking your hard-earned money!

On the Calendar

It looks as if the Economic Calendar has decided to take most of the day off to watch the eclipse.  At 8:30 AM Eastern there is a single report from Chicago Fed National Activity Index.  As a general rule, this report will not move the market.  Other than that we have a bill announcement and a couple of bill auctions wrapping up the day.

On the Earnings Calendar, we have just over 50 companies reporting earnings today.  Scanning through the list, I don’t see any that would be market moving reports.  However, it is always wise to make sure are checking your current holdings and those you are considering to trade.  It only takes a couple of minutes but could save you thousands in trading capital.

Action Plan

Friday was a tough day for the traders that jumped in on Thursday trying to buy the dip.  While the DIA managed to hold on to the 50-Day SMA, the SPY and the QQQ’s both closed below.  Technically the QQQ’s are in better shape than the SPY having managed to close just above the low on the 10^th.   The SPY is now technically in a downtrend and a candidate for a Blue Ice Failure pattern after a brief rally.  The IWM is by far the weakest of the indexes closing well below the 200-day average, however, holding onto a major price support built over the last ten months of trading.

I was quite content with my decision to stand aside on Friday.  As I will be gone shortly after the open to meet with a group of astronomical scientists to study the eclipse, I will not be trading today either.  Although the futures were negative all night long, they are now suggesting a flat open.  Personally, I believe that the indexes are currently over sold in the very short-term.  A bounce or relief rally could begin at any time, but please don’t interpret that as an invitation to buy the dip blindly.  There is a lot of technical damage in the SPY, QQQ, and IWM.  Any bounce or rally may serve to attract more Bears so be very careful.  Also, keep in mind much of the US will be out observing the eclipse today.  I would not be surprised if the volume was light and the price action was choppy most of the day.

Trade Wisely,

Doug