Average Hourly Earnings In Focus

The Employment Situation report is always very important to the market, but today I think the focus will be on the Average Hourly Earnings.  With three of the four major indexes closing below their 50-day averages this largely ignored number is likely to set the direction of the market today.  I have been warning of caution for so long it’s become tiring, but my caution has paid by protecting my capital.  Sadly I must continue to say caution is warranted.  I think a relief rally is near, but that is not a signal of bullishness.  We must keep in mind the index’s now must deal with overhead resistance.  A rally could prove to be the time to sell not a time to buy.  Also, remember with the VIX moving higher the possibility of very fast reversals increases so the traders must be prepared for anything.

On the Calendar

Today we get one of the most important reports on the Economic Calendar, the Employment Situation.  Most of the time the market is laser focused on the Jobs creation number.  However, with the unemployment rate expected to hold at 4.3% (considered as full employment) focus has turned to wage growth.  If the U.S. consumer-based economy is to grow then, consumers need to have the ability to spend more.  Wage growth has been lagging behind for years, and the market wants to see that change.  Consensus suggests the average hourly earnings will improve from 2.5 to 2.6 this month.  A reading of anything above 2.6 I believe the market will see as very bullish.  If the number disappoints, I think we should expect Bears to gain strength.

Wage growth also signals rising inflation which in turn increases the likelihood that the FOMC will react raising interest rates.  The true double edged sword!  There is only one company, GRIF on the Earnings Calendar today which is obviously not a market moving event.

Action Plan

Yesterday we witnessed some hungry Bears pushing all the major indexes lower.   The DIA chart now has the appearance of a double top forming while still clinging to a price support and above the 50SMA.  That’s the good news!  The bad news is that the SPY, IWM, and the QQQ closed the day below their 50-day averages.  The VIX is showing that some fear created into the market yesterday while T2122 suggests we could be nearing a market bounce.  So which way will it go?

I think the tie breaker today will be in the average hourly number at 8:30 AM Eastern.  A number of 2.6 or better and I’m guessing we will see the market gap up.  If the number comes in below 2.5, I think a gap down is likely.  With that in mind, I will be keenly interested in how the market reacts to the Employment Situation report.  Personally, I favor a nice relief rally, but oddly my phone isn’t ringing with the market asking for my opinion.  Friday is normally not a day for me to consider buying new positions but if the opportunity arises, I will be prepared to do so.

Trade Wisely,

Doug

Uncertainty continues to plague the market.

The choppy price action and violent reversals continue to plague the market.  Emotional uncertainty seems to be the best way to describe current price action.  As a result, many charts are displaying technical damage, raising the concern of a market top.  Geopolitical events are also raising uncertainty levels adding additional risk to every trade.  This morning the futures are pointing to a gap down which will break some important support levels.  Those that were determined to trade yesterday will most likely see an unhappy result in their account this morning.  Not every day is a good day to trade!  Sometimes the best decision is just to stand aside and watch.

On The Calendar

We have a busy morning on the Economic Calendar today.  We get it going with the ADP Employment Report at 8:15 AM Eastern and quickly followed by International Trade and Jobless Claims at 8:30.  The ADP number missed the mark last month over shooting by 106K!  For June their guess for 180K jobs created.  The International Trade gap is expected to narrow slightly to 46.2 billion from the 47.6 reading last month.  Labor demand is expected to remain very strong with and expectation of 244K jobless claims which is unchanged from last week.

At 10:00 we get the latest reading on the ISM Non-Mfg Index which forecasters see coming in at 56.5 versus May’s 56.9 print.  All eyes will be on the 11:00 EIA Petroleum Status Report which has been trending slightly lower.  However, supplies have remained so strong oil prices have continued to struggle, and that is not expected to change much today.  We have 1 Fed Speaker during market hours at 10:00 AM and then after the close today at 7:30 PM

We have 13 companies expected to report on the Earnings Calendar today.  I would not expect any of the companies reporting to market-moving or particularly noteworthy.

Action Plan

Yesterday turned out about as expected yesterday with light volume and choppy price action.  Technically speaking nothing changed in the charts.  During the live session yesterday I gave my case caution looking over the four major indexes.  Unfortuniantully, it would seem my concern is showing up in this morning’s futures currently suggesting a gap down at the open.  Saber rattling with the North Korean dictator has intensified raising the level of uncertainty for the market.  Also, keep in mind that the big Employment Situation report is tomorrow morning.  Often the market is very choppy before this report so doesn’t be surprised to see another day of poor price action.

My overall plan remains the same.  Manage current positions and continue refining my shopping list of potential trades.  If I do trade, I will plan smaller than normal positions due to the price action risk of the market.  Always remember Cash is a Positon.

Trade Wisely,

Doug

Messy Contradictory Price Action Signals.

We are the middle of a big of a technical mess when it comes to the index charts.  The DIA’s trying to make new highs at the same time the QQQ’s are trying to make new lows.  As the SPY remains stuck below resistance, the IWM is showing strength.  It is my opinion that contradictory price action signals such as this make the market a very very dangerous place for swing traders.  The whippy price action and quick reversals are more suited for swift day traders.  If you decide to trade, then prepare for anything.  I suggest smaller than normal positions because stop outs will be commonplace and Emotions will likely run high.

On the Calendar

Today we start off with the Factory Orders on the Economic Calendar at 10:00 AM Eastern.  Orders are expecting to see their second decline in a row with durables just down slightly, and nondurables such as energy remain weak.  We must wait until 2:00 PM for the next report which is the FOMC minutes.  It’s unlikely we will learn anything new from the minutes, but the market is typically choppy and tentative ahead of the number.

On the Earnings Calendar, there are 19 companies expecting to report earnings.  One, in particular, YUMC, has had a lot of member interest lately so make sure you have a plan if you’re holding it as it reports after the close.

Action Plan

Monday the DIA tried to lead a full-on breakout reversing last Thursday’s selloff.  Those that chased in were likely disappointed to see it whip back down before the close wiping out more than half of the day’s gains.  The SPY also attempted an early rally but left behind a black candle below price resistance.  The QQQ once again gave up support testing the lows of last Thursday and closing almost at the low of the day.  IWM, on the other hand, managed to hold above support putting in a bullish morning star pattern.

Talk about a mixed bag of signals and technical mess to try and decipher in the charts.  All of the whippy price action and contradictory directional signals is a head game I’m pretty sure I don’t want to play.  Coming back after a mid-week holiday I think we could see lighter than normal volumes as may trader will likely extend vacations through to next week.  Toss in the FOMC, and you have the formula for a perfect mess that could prove to be very dangerous.  I think I will continue to stand aside as far as new positions until some of this mess gets cleaned up and a direction established.  I will be looking for new trades, building shopping lists and refining them but it will take a nearly perfect setup for me willing dive into this emotional quagmire.

Trade Wisely,

Doug

Beware Price Gaps Below Resistance.

It is always wise to beware price gaps.  When they occur below resistance levels after a significant selloff, I want to focus on the price action and avoid the emotion a gap can create.  The fact that the market closes early today and will likely lack volume makes we want to avoid it all together.  Do as you like, but as for me, I will be standing aside.  NYSE closes at 1 PM today, and Tuesday the market is closed so plan accordingly.

On the Calendar

The Economic Calendar begins the first trading day in July with the PMI Manufacturing numbers at 9:45 AM Eastern.  Last month PMI slowed to 52.1, and consensus suggests it will remain steady for June.  At 10:00 AM we get the most important report of the day, the ISM Manufacturing Index.  Earlier this year ISM peaked at 57, but forecasters are calling for a 55.1 print in June which is a slight improvement over May.  Construction Spending is also at 10:00 AM today which is expected to show improvement with a 0.5% gain.

There are nine companies expected to report earnings today.  I don’t expect any of them to be market-moving reports.  Keep in mind that today marks the first trading day of the 3^rd quarter.  That means we will soon be right back into earnings season.  Make it a habit of checking for earnings reports on every position you are in and every new trade you are considering.  Failing to do so can be a costly mistake.

Action Plan

Friday saw nice relief rally, but by the end of the trading day much it was given back with a quick move lower.  As expected, most of the day saw very choppy price action.  Futures are currently pointing sharply higher suggesting a gap of nearly 70 points at the moment.  Let’s keep in mind that today is only a partial day of trading.  The big gap open will most likely meet with light volume trading after the morning rush.  It would also be wise to notice that all the major indexes will still be below resistance levels.

As for me, I plan to do no trading at all.  If I were planning to add risk today, there is not a chance that I would chase the gap up open.  I would give it at least 30 minutes trading and make sure that real buyers step in to support the gap.  Remember gap up opens into resistance levels are subject to whipsaw price action.  Chase in and you could find yourself buying at the highest price of the day entire day.

Trade Wisely,

Doug