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

Is there a storm on the horizon or just a lot of hot air?

Today’s market is filled with news-driven events most of them political in nature.  Could there be a storm on the horizon or will it be nothing more than a lot of hot air blowing around?  Who knows but one thing for sure is that it is likely to be great fodder for Saturday Night Live skits!  I would recommend caution with the futures pointing to a gap up open ahead of all the events about to unfold this morning.  Anything is possible, and I think it would be wise to plan for whippy price action today.  As the drama is acted out on both sides of the political isle swift price moves are possible.  Although I will looking for new trades, I have no desire to compete with a three ring circus.  As a result, so I will be waiting for price action to settle and show me the way.

On the Calendar

Today we have a lot for the market to chew on, but most of it is not on the Economic Calendar.  First up we have the weekly Jobless Claims at 8:30 AM Eastern.  Claims continue to be unusually low pointing to a strong labor market.  The positive trend is expected to continue with the number released this morning.  In fact, it would likely have to come in as a huge surprise to move the market.

On the Earnings Calendar, there are 36 companies expected to report today.  Marke sure to check current holdings and new purchases for potential earnings reports.

The big events will be in the news today.  First off we have ECB decision this morning with a speech following by Draghi.  Obviously, this can move the market if there is something unexpected revealed.  Later today at 10 AM the circus act in Congress will begin the testimony from Jame Comey.  The market saw a slight rally yesterday when details of his interactions with the President were released.  It would appear that there is no smoking gun despite all the rhetoric.  Of course, if something groundbreaking said during the testimony the market could react wildly so plan accordingly.  There is also the possibility of market turmoil with the parliamentary elections in the U.K. and their impacts on Brexit.  A wild and wooly day to be certain.

Action Plan

With so much potential market moving news this morning I want to be very cautious this morning.  Currently, the futures are pointing to a gap up open setting the stage for a whipsaw price action ahead of all the news.  If something unexpected happens to be revealed in the Comey congressional dog and pony show swift price moves are likely to occur.  Anything is possible today so have a well thought out plan for current holdings as well as new positions you are considering.  I will be looking for new trades, but I will move slowly as these events unfold.

Another issue to be mindful of is the unusual price action of bonds moving higher with the market.  Normally bonds would decline as the market rises, but right now bonds have been gaining ground right alongside the overall market.  I’m not suggesting this is signaling impending doom, in fact, I don’t know what to make of it, but I do think it requires our attention.  Perhaps it’s nothing, but it is odd and may be providing clues to growing market fears.

Trade Wisely,

Doug