What a difference a day makes!

The ugly whipsaw yesterday took the market over confidence to the wood shed and beat it half to death.  What a difference a day makes!  In my note yesterday I wrote the importance of having a plan for a reversal that could happen at any time.  I also mentioned the dangers of over-trading an extended rally.  Believe me; I understand how easy it is to get caught up in an extended rally.  A mistake I made over and over for years.  Being prepared for a possible reversal is not an act of bearishness.  It’s simply a responsible and disciplined act of good business practices.  We can not predict the time and date of such price action but can prepare a plan on how to deal with it and avoid poor emotional decision making in the heat of battle.

On the Calendar

The last Friday of the July begins with a very importing number on the Economic Calendar.  The final estimate of the 2^nd quarter GDP releases at 8:30 AM Eastern.  Consensus suggests it will come in with a solid 2.6% annualized rate with retail sales leading the way.  Keep in mind the GDP number can move the market.  Out at the same time is the Employment Cost Index which jumped up 0.8% in in the 1^st quarter but the forecasters see that slowing slightly with a reading today expected at 0.6%.  Consumer Sentiment is at 10:00 AM and is expected to show continued strength with a reading of 93.1.  After that, the only thing of note is a Fed speaker at 1:20 PM this afternoon.

On the Earnings Calendar, there are about 100 companies expected to report today.  Stay on your toes and continue to check earnings dates for companies you hold or are thinking of buying.

Action Plan

Yesterdays whipsaw should not have been a surprise to RWO readers.  We can never know the date and time when something like this will occur but as I have been saying, prepare, because the possibility exists.  Gap up’s to new market highs should always put us on high alert for the possibility of whipsaw price action.  The VIX at historic lows only adds to the high alert status.

The whipsaw made a mess of a lot of charts, and I suspect could be a warning of higher volatility days to come.  Choppy markets are dangerous and very difficult to trade.  It may be wise to curtail trading activity until we get better clues on direction.  There is also a mix of signals in the Index charts raising some concern.  The DIA managed a full recovery closing at a new record high.  However, the SPY and the QQQ closed with ugly bearish engulfing candles although well off the day’s low.

Futures were negative all night but have recovered slightly in the early premarket.  Toss in the Senate’s failure on the health care bill, and the AMZN earnings miss and explosive volatility could be the result.  Overall the trend continues to be up, but I will not likely seek to add new risk ahead of the weekend with such price action confusion.  I will, however, be very focused on managing current positions and taking profits where possible to reduce exposure to the market.

Trade Wisely,

Doug

Earnings fueled rally nearing 3-weeks up.

The current rally has been amazing with new records for the books almost every day on this earnings fueled rally.  Hey, who doesn’t love market rally? Right!  Profits are easier to make, and the world of the trader just seems to be filled with sunshine and rainbows.  It’s often times like this when traders get complacent.  Breaking the rules, rushing trades and/or over trading.  If we fail to plan carefully, we invite emotion into our trading which normally ends badly.  Maintain your discipline, be prepared and protect your capital from emotional decisions with a well thought out plan.

On the Calendar

The Economic Calendar begins with Durable Goods this morning at 8:30 AM Eastern time.  Durable goods is a market moving number that has been a little soft with declines in both April and May.  Consensus for this month is to see a big bounce back with an expected increase of 3.5% mostly on the back of the aircraft industry.  Also at 8:30 AM is the International Trade in Goods number as well as the Weekly Jobless Claims.  Trade goods are expected to come in with a 65.0 billion deficit which is an improvement from last month.  Labor has been very strong, but there is an expectation of an increase to 240K from the 233K last reading.  There are a few nonmarket moving reports, auctions and announcements.

Today is a huge day on the Earnings Calendar with nearly 450 companies expected to report results today.  Believe me; it’s in your best interest to check reporting dates before entering new positions.  It is equally important to check on reporting dates within your portfolio.

Action Plan

Yesterday the market pretty choppy which is normal on an FOMC announcement day but all in all the indexes held up pretty well.  Earnings have already begun to roll in this morning with the majority being positive.  Futures are currently reflecting that bullishness pointing to a slightly higher open, but it could shift quickly on the data laden day.  As of right now the QQQ’s are showing yet another gap up open and another record level for the history books.  The DIA and the SPY are not far behind.

As always my top priority is to manage current positions first and as we begin to wind down this trading week taking profits is also high on my list.  I will, however, look for new trades today but much recognize the fact that the rally is nearing the 3-week mark.  I’m not predicting a turn but if one did occur it should not be a big surprise so plan your trading accordingly and always have an exit plan.

Trade Wisely,

Doug

Plan for an extra dose of volatility.

With hundreds of earnings reports today and the FOMC announcement, we can likely expect volatility to kick up a notch.  Extra volatility should not be feared, but every trader should have a plan in place to deal with it unemotionally.  Please, Please, PLEASE make sure you are checking earnings dates on all stocks.  As an example take a look at AKAM.  AKAM had a beautiful entry signal at the end of the day.  I would normally have bought the stock in a hot minute but checking earnings I discovered it was about to report.  Thankfully I checked because the stock is gapping down almost 8% this morning!  That few seconds likely saved me hundreds of dollars.  Defentally worth the effort!  With VIX so low there are many traders beginning to speculate the market is overbought.  That could be true but trying to predict a top is a very difficult business that normally costs those that do a lot of capital.  If you’re concerned about a market top, lock in profits and reduce trading activity.  The market will tell us where it wants to go if we just wait and watch rather than predict.

On the Calendar

Hump day on the Economic Calendar begins with New Home Sales at 10:00 AM Eastern.  Forecasters see home sales increased slightly to 611k consensus in June.  Then at 10:30 AM we will get the EIA Petroleum Status Report.  Oil supply levels have been trending lower in the EIA report, and continued reductions are very important to stabilize the commodity prices.  Then at 2:00 PM is the all important FOMC Announcement on interest rates.  The market is not expecting a rate increase today but keep in mind that all they have to do is change a word or two in their statement to move the market dramatically.

On the Earnings Calendar, there are 275 companies reporting results today.  As of now, earnings have pushed the market sharply higher with no fear.  Nevertheless, it is extremely important for every trader to find out when the companies they hold are reporting.

Action Plan

Overall we saw the indexes held up pretty well yesterday, but the price action was rather subdued as the market waits to hear from the FOMC.  The bullish trend is still is still in place on a daily and the weekly charts.  The best practice is to continue trading with the trend.

The trend is still up, so I will continue to look for long trades. However, I will be slow to enter new risk at this point in the rally.  Although I have pickup some new trades, I have also been reducing overall risk taking profits on several positions already this week.  My inclination is to continue to reduce risk as market extends this rally.  Currently, futures are pointing to a small gap up open but keep in mind trading will today will not only be affected by hundreds or earnings reports but also the FOMC announcement.

Trade Wisely,

Doug