Is your bullish confidence stronger than your tolerance for risk?

Is your confidence in this rally enough to risk capital at resistance?  The recovery from last Wednesday’s selloff has been impressive, but let’s keep the overall price pattern in mind.  Price resistance is still price resistance and the uncertainty that created the selloff as not changed.  Could the Bulls just plow right through to new highs?  Obviously, the answer to that question is yes; resistance is not forever or unbreakable.  However, the question we as traders have to grapple with is, how confident are you in the strength of the market at resistance?

One the Calendar

On the Economic Calendar, today is the PMI Composite at 9:45 AM Eastern follow by New Home Sales numbers at 10 AM.  Both reports have the potential to move the market, and both are indicators as to the health of your economy.  They have been tracking positive, but New Home Sale are leading the way with very strong results.  On the Earnings Calendar, we have 41 companies reporting today.  INTU is the big tech reporting after the bell today.  Keep an eye on a couple of the room favorites MOMO reporting before the bell and TTWO reporting after the close.

Action Plan

At the risk of sounding like a broken record, I want to remain cautious when adding new risk.  As you know, I’m currently long eight positions and want to avoid adding risk as the market tests resistance levels.  Having said that there are a lot of good looking charts so if you decide to trade so be choosy.  Markets can reverse very quickly at resistance so look for low-risk entries and consider smaller than normal positions.

Futures are suggesting another positive open.  One of the things I always watch for when the market is testing resistance and the futures are pointing up is the whipsaw.  Please understand I am not predicting that a whipsaw will occur.  I am only pointing out that this is the perfect place for them to occur.  The good news is whipsaw price action will usually show itself within the first 30 minutes of trading.  Avoid rushing in at the open, and you can often avoid the whipsaw.

Trade Wisely,

Doug