Bullish Overnight Reversal

After witnessing sellers in control at the close yesterday, seeing the Dow Futures pointing to more than a 150 point bullish overnight reversal is a nice relief.  If buyers step in supporting this gap, then the Dow has successfully held it’s 50-day average.  However, we need to keep in mind that nothing has changed on the trade war front and remember gaps invite the possibility of whipsaw price action and exercise a little caution at the open.

Remember 3^rd Quarter Earnings officially kick off Friday with JPM, C, PNC and WFC all reporting before the bell.  There seems to be a great deal of anticipation of good results this quarter.  Perhaps the banks can provide just enough inspiration for the bulls to hold today’s gap and push the market higher to close the week.  Only time will tell.

On the Calendar

W have two market-moving reports to kick off the Economic Calendar at 8:30 AM Eastern this Thursday.  First up is Consumer Price Index that consensus suggests a 0.2 percent gain in June with a core number also up 0.2 percent.  Year-on-year PPI expects a one-tenth increase to 2.9 percent.  Next is the Weekly Jobless Claims which forecasters expect a decline to 225,000 from last weeks reading of 231,000 as labor demand remains very strong.  At 2:00 PM we will get the Treasury Budget which is expecting a monthly deficit of 91.0 billion.  W have 2 Fed Speakers today at 12:15 PM and 8:00 PM, several non-market-moving reports, and four Bond Announcements to finish up the busy calendar day.

On the Earnings Calendar, we have 19 companies reporting with one of the most notable being DAL before the bell.  Keep in mind earnings season officially kicks off on Friday with several big banks reporting.

Action Plan

The ugly price action yesterday seems to have inspired the bulls to get moving this morning.  Asian and European markets are both higher overnight and the Futures are currently pointing to a substantial gap up open.  As I write this, the Dow Futures suggest better than a 150 point reversal of yesterdays close.  As always be careful about chasing gap, but if we see buyers stepping in to support the gap, then the Dow has at least for now passed the test of holding its 50-day average.  A good sign indeed.  However, it’s always wise to watch for the potential whipsaw after a gap that could bring prices right back down.

There seems to be a great deal of anticipation of strong earnings this quarter with some of the big techs simply rejecting yesterdays selloff and moving higher.  If the bulls do show support today and with some good big bank earnings on Friday we still have the chance of closing this week on a high note.  Let’s keep our fingers crossed.

Trade Wisely,

Doug