Morning gaps but no follow-through action.

So far this week the pros have pumped up the premarket in the futures gapping the market higher.  There is nothing wrong with that as long as we see some follow-through buying after the open.  However, the last two days have only seen chop after the open making it frustrating and challenging for most traders.  I have been warning each day to avoid chasing the gap and getting caught up in morning drama.

With the futures pointing to another gap up today, I will risk sounding like a broken record and repeat the same words of caution.  Keep in mind FOMC Minutes come out this afternoon.  It would not be a surprise if the market waits for choppy price action before the report.  After the minutes are released expect an extra dose of volatility with quick whipsaw action.

On the Calendar

We have three potential market moving reports on the Economic Calendar today.  At 8:30 AM Eastern it kicks off with Housing Starts which were weak in both April and May but bounced back in May.  Forecasters expect to see another increase today to 1.225 million annualized rate.  At 10:30 AM we get the EIA Petroleum Status Report.  Last reading broke a downtrend in oil supplies with a surprise build squashing the recovery that had begun in the sector.  Let’s cross our fingers and hope for a decline in supplies today helping to support the overall market.  The always anticipated FOMC Minutes will come out at 2:00 PM.  Normally the market would see light volume and choppy price action ahead of the number, but there is nothing normal about the current market.

On the Earnings Calendar, we have over 40 companies reporting today.  Retailers happen to be in focus with TGT reporting before the open today.

Action Plan

Our all or nothing market continues to gap higher at the open, but so far this week, there has been little to no follow through the rest of the day.  There is movement in some individual stocks but to have a little luck and be very quick to gain much benefit.  Currently, the futures are pointing to yet another gap up, but as now a breakout to new price levels has not occurred.  If you find yourself frustrated, you are not alone!  With out question, current price action has been very challenging with little to no edge for retail traders.

With another professional gap this morning I am once again forced to wait for clues that real buyers are willing to support current prices of the overall market.  The gaps on both Monday and Tuesday were met with chop the rest of the day.  Perhaps today will be different but with the FOMC minutes coming out this afternoon could once again create the conditions for more chop after the gap.  The trend is up so if I do trade it will be long.

Trade Wisely,

Doug

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