Another day, another reversal.

On the close of Monday, it looked like the market had picked a direction Tuesday delivered another potential reversal signal.  This kind of price action is not uncommon at or near market highs, but that doesn’t help us as traders when we continually receive reversal patterns.  Ond day everything points to Bulls in control, but before you know it, tide shifts and Bears appear to gain control destroying your confidence and chopping up your account.  The only way to avoid this to stop trading but that’s not something most of us want to hear.  We want it, and we want it NOW!  As for me, I will continue to trade, but I plan to trade less only taking the best fo the best setups.  I also intend to trade smaller than normal positions to diminish my overall risk in the event I’m whipped out, by yet another reversal.

On the Calendar

The hump day Economic Calendar has a couple of important reports for the market to chew on this morning.  First off at 10:00 AM Eastern time we get the Existing Home Sales number which was disappointing in April.  Today the consensus says we should see a rebound to a 5.550 million annualized rate.  There some concern that rising home prices might affect this number going forward.  At 10:30 AM is the EIA Petroleum Status Report.  The number last time continued to show a decrease in overall supply, but it was not enough to stop the decline in oil prices.

On the Earnings Calendar, we have 14 companies expected to report results today.  There two big tech companies MU and ORCL that report after the close.  Both companies will be important to the QQQ’s index to heal some of the technical damage it has suffered recently.

Action Plan

Yesterday saw light volume choppy price action most of the day.  At the end of the day, the Bears gains strength pushing the SPY lower nearly filling the entire gap left behind on Monday.  The DIA remained stronger avoiding a bearish engulfing candle by a tiny margin.  With the reports from ADBE and FDX coming in strong after the close I was expecting to see the futures in positive territory, but as of now, they are showing slight weakness.

Adding new risk has been difficult as the market chops and whips around.  Just when you think the all clear has sounded and we get price action that raises a lot of concerns.  I will continue to look for new trades, but until I see this market settle down, I plan to take smaller positions.  If I’m not whipped out, I can always add to the trade later.  Remember activity does not equal achievement.  Trading less or not trading at all during choppy times protects your capital.

Trade Wisely,

Doug

Fearless market gaps to new record levels.

Price action is showing amazing confidence as the fearless market gapped up and ran to new record levels yesterday.  I must admit at these levels leaving gaps behind gives me pause, but the overall direction of the market is clear.  The Bulls are in control, so I will continue to trade with the trend until price action provides clues to the contrary.   Naturally, we all have a bias but it is the successful trader that sets it aside allowing the market to work for them rather than fighting it.  We all want to be right but would you rather be right or profitable?

On the Calendar

Another light day on the Economic Calendar.  There are 3 Fed Speakers as some bond auctions but no economic reports of note.  The Earnings Calendar shows 21 companies reporting today including a few important name like ADBE, FDX, RHT, and LEN.  FDX can move the market because many feel it is an indicator pointing out the health of the consumer.  The report from FDX will not occur until after the market closes today.

Action Plan

The DIA displayed amazing strength yesterday gapping up and continuing up to new record highs once again.  Also, the SPY dramatically improved, leaving a gap behind and managing a new closing high.  The QQQ’s and the IWM lagged behind but managed to close near the high of the day.  Fear once again is extremely low and only about 1 ½ points from new record lows.

There is no question that the Bulls are in control although volumes were slightly light yesterday.  It is as if the market is melting up without concern.  I have to admit that makes me a little nervous but all I have to do is to continue to trade with the direction of the overall market.  The trend is up, so I will continue looking for long positions as long as that continues to be true.  However, at these price levels, it is important not to become complacent.  So I will be very focused on price action and prepared if clues of weakness start so show.  Although I will be trading long, I will also increase my aggression when it comes to capturing gains.  Swift reversals can occur around market highs.  I will not allow winning trades to become losers.

Trade Wisely,

Doug

The Bulls maintain control.

There is no question that Bulls maintain control when looking at the daily index charts.  The DIA in particular looks like smooth sailing with nothing blue skies ahead.  Although calm on the surface, we all know there has been a lot of turbulence.  Big price swings intra-day has made it a very challenging market for swing traders.  With VIX retesting historical lows the only the DIA reaching out for new highs with a gap up open I want to stay calm and avoid chasing at the open.  I am not suggesting a whipsaw will occur but I want to point out the potential exists.  I will need to some follow-through buying after the gap this morning before making any new decisions on risk.

On the Calendar

A very light day on the Economic Calendar today.  Other than a few bond auctions we hear for a Fed speaker at  8:00 AM eastern and then another after the market close at a 7:00 PM.  There are only five companies reporting earnings today none of which are likely to move the overall market.

Action Plan

Last week’s volatility keeps the caution flags flying high.  Three times last week the market made sharp moves lower giving everyone the reason for concern.  However, with the DIA leading the way with whippy intraday price action it always managed to recover.  The pre-market futures are very positive this morning pointing to new record prints for the DIA.  The SPY, IWM and QQQ’s however still have price pattern that less than impressive and should give us reason look carefully before leaping.

As you know, I am always very watchful of potential whipsaws price action at or near market highs.  With the DIA breaking out and all the other indexes lagging behind it would seem to be the perfect setup for that possibility again.  So keep and close eye and avoid chasing at the open.

It is also very important to avoid bias and just follow the market.  The DIA is displaying bullishness, and there is currently nothing suggesting it is ready to reverse or even slow it’s progression higher.  On the other hand SPY, IWM due suggest weakness is possible.  The QQQ’s has suffered some major technical damage that as has a lot of work to do before it cold be considered bullish.  I will be looking for new long trades today, but I will not chase right after the open.  I will need to see that real buyers are stepping and that the gap up is not just another institutionally created pump and dump.

Trade Wisely,

Doug

Whippy price action increases risk.

The whippy price we have been experiencing is pretty typical as a market struggles with new highs.  However, it’s that same whippy price action that chops up traders and increases the risk on every trade they make.  We never know how long a period like this will last.  It’s the wise trader that recognizes the additional risk and curtails their trading activity and decreases the size of trades during higher risk periods.  It’s so easy to lose hard earned profits fighting volatile price action.  Always remember Cash is a position.

On the Calendar

There is no question that this has been a big week on the Economic Calendar.  Today we get a little break with only three noteworthy items.  First, we will get the Housing Starts number at 8:30 AM Eastern.  The April number was a disappointment. However, forecasters see them bouncing back in May to a 1.2 million annualized rate.  At 10:00 AM we the latest reading on Consumer Sentiment which has been trading very strongly this year.   The consensus is suggesting that will continue with a 97.1 print.

After only a brief break we will once again start seeing the Fed speakers back on the news tour.  Today we have one speaker at 12:45.  The Earnings Calendar is also giving us a break today with only one company expected to report.  The company ticker is UTSI, and they have not confirmed the time of the report.

Action Plan

Yesterday we experienced yet another major whipsaw as the market try to decipher what to do at these highs.  For the last ten days, the Spy has chopped in a range of just over 2 points and often visiting both sides of the range each day!  The DIA has seen big point swings every day yet has managed to maintain an uptrend in the process.  Needless to say, it has become a very challenging market for swing traders due to the volatility.  I would like to say it’s over, but there is no reason to believe that today won’t be more of the same so again I’m suggesting caution.

Overall the trend is still bullish thus I will continue looking for long positions, but if I find good trades, I will reduce the trade size until I see extreme whips come to and end.  To successfully trade whippy market stops have to widen to avoid intraday whips from constantly tripping stops.  So, in conclusion, I suggest trading small if you decide to trade at all.

Trade Wisely,

Doug