Price action is decisive but support holds.

It was encouraging to see positive price action and the DIA, SPY, and IWM holding price supports.  Even the technically damaged QQQ managed to stave off additional selling.  Price action, however, proved to be very two-sided and whippy.  As a result, the markets left behind indecisive patterns that will keep me on the side of caution.  The market faces a massive data dump tomorrow as well as a rate decision from the FOMC.   Don’t be surprised if we continue to see choppy price action and indecisiveness today.

On the Calendar

Today begins the FOMC meeting that culminates tomorrow afternoon with their decision on interest rates and Yellen’s Press Conference.  Also on the calendar today it’s the Producer Price Index (PPI) at 8:30 AM Eastern and a Fed speaker at 1:45 PM.  PPI rebounded slightly in April, but services remained weak pointing to a concern of demand weakness.  Consensus sees the number increasing by 0.1% with food and energy at 0.2%.

On the Earnings Calendar, we have 32 companies reporting today.  I don’t see any potential market moving earnings reports, but it is always wise to check your holdings and new purchases for reporting dates.

Action Plan

With the FOMC rate decision looming I think could see a lot of chop and whippy price action as we wait.  Odds of a rate increase are running in high 90’s percentile.  As of right now, the overall market seems to be taking the likely rate increase in stride showing fell ill effects.  The four major indexes held up better than I would have expected after Fridays surprise tech sector selloff.

Futures are currently pointing to a slightly bullish open and except for the technical damage in the QQQ overall the market remains bullish.  However, there is a huge wave of data coming at on Wednesday, and I feel the need to remain quite cautious when considering new risk.  I will not rule out adding new positions today but keep them smaller than normal, and I will need to see the Bulls showing better commitment overall.  Choppy anemic price action just won’t get it done.

Trade Wisely,

Doug

Friday’s whipsaw has caution flags flying high.

The Friday afternoon whipsaw was simply Nasty!  It left traders counting up losses on stopped out trades where just a couple hours earlier they had been looking at gains.  It also quickly spiked fear and once gain reminded us how dangerous complacency becomes at or near market highs.  At a minimum, Friday was a warning that we must always be at the top of our game and a “safe” market does not exist.  As for me, I will be approaching today’s market with extreme caution and a very watchful eye on price action.  Was this a one-off event or a warning of trouble ahead?  Only time will tell.

On the Calendar

The Economic Calendar begins with a whimper today but will roar like a lion by mid-week when the FOMC comes front and center.  Today, however, we only have a few bond auctions and the Treasury Budget that comes out at 2:00 PM Eastern.  Although it should be shocking that May is expected to produce an 87.0 billion dollar Federal deficit, it will pass without notice.  In truth 87.0 billion is a slight improvement over last years numbers.

On the Earnings Calendar only ten companies reporting earnings today none of which are overall market movers.  Always remember to check earnings on each and every stock you hold and are thinking about purchasing.  There is no excuse for being surprised by an earnings report.

Action Plan

Friday’s wild price action ride amounted to a very nasty whipsaw.  I ended up closing a couple of positions in response to preserve some small gains.  Caution lights began flashing all over the place as I looked through charts and that caution remains this morning.  Futures are currently pointing to a slight gap down open today but what we will have to pay very close attention to is how traders react after the open.

The VIX after hitting a new low record low Friday morning rather suddenly shot up 28% but settled up only 14% by the close.  That kind of volatility is difficult even the most experienced traders.  As a result, I am suggesting that new or struggling traders should stand aside, watch and wait.  Price action like this could turn out to be nothing, or it could be a warning of turmoil ahead.  I will manage my current positions, but I will be waiting for good price action clues before even considering new risk.

Trade Wisely,

Doug

Shooting stars and doji’s abound.

As I looked through the charts last night, I saw a lot of shooting stars and Doji’s at highs which are considered bearish.  I also saw a lot of indecisive doji’s at highs and in consolidations.  Both of these conditions would warrant significant caution. However, there was also a lot of very bullish patterns and some fantastic looking charts.  What’s a guy to do?  Yesterday was a very emotional day for the market due to the congressional hearings.  There were several full reversal whipsaws during the day making charts very convoluted.  As of now I’m staying bullish on the overall market and may even consider adding some risk ahead of the weekend, but I will give the market a good 30 minutes to an hour to settle in before making any decisions.

On the Calendar

A very light Friday on the Economic Calendar with only a couple reports with little to no significance.  On the Earnings Calendar, it’s much the same with only eight companies reporting.  None of which should be market moving.  Truly the quiet before the storm, because next week we have one of the fullest calendars of market moving reports I’ve seen in a long time.  Of course, the biggest is the FOMC decision on interest rates.

Our news filled day yesterday turned out to be a non-event the U.K. elections could create some turmoil abroad and is worth noting.  Long story short, the Prime Minister lost so may key seats it would normally force her resignation.  However, she is refusing to resign and will now seek the approval of the Queen to form a government.  Let the drama begin!

Action Plan

As you know Friday is normally my day to take some profits and a day I usually restrict myself from adding new positions.  However, with the decks, somewhat cleared for the President to proceed with his plans; And the house passing the bill that removes much of the Dodd-Frank debacle I’m thinking of adding risk.  The big banks began a rally yesterday, and I would expect that to continue today.  Futures have the chances of that the FOMC will raise interest rates next week above 95% which should help the banks even more.  Hince, I will be looking for an entry in the financial sector.  Stay tuned.

Trade Wisely,

Doug