Capitulation

The news-driven selloff seems to have finally reached a capitulation point yesterday. Sadly those that sold yesterday afternoon had also to suffer the indignity of seeing the futures bounce strongly almost immediately after the closing bell. Although we should expect volatility to remain very high with very fast and challenging price action, I think we have reached the point where institutions and value buyers will begin to support current prices.

Of course, earnings are the big unknown and if we see some of the big techs disappoint the market, the bears could easily maintain control. With the VIX closing above a 25 handle, any major disappointment in earnings could evolve from fear into outright panic. Consequently, the price action will most likely be very challenging and not a place for those faint of heart. Extreme intraday whips are possible so plan your risk very carefully.

On the Calendar

We begin Wednesday with three potential market-moving reports at 8:30 AM Eastern. First, Durable Goods Orders expects September to decline by 1.5 percent after surging 4.4 percent in August. International Trade in Goods sees the deficit narrowing to 74.7 billion vs. 75.5 billion in August. The Weekly Jobless Claims are expected to remain near historic lows but rising slightly to 212,000 this week. After that Retail Inventories and Wholesale Inventories @ 8:30 AM, Pending Home Sales Index @ 10:00 AM, Natural Gas Report @ 10:30 AM, Kansas City Fed Manufacturing Index, and 2-Bond Announcements @ 11:00 AM, a Fed Speaker @ 12:15 PM, a Bond Auction at 1:00 PM, the Fed Balance Sheet and Money Supply at 4:30 PM, and a Fed Speaker to finally close the calendar day at 7:00 PM.

There are far too many notable companies to list this morning. We have 339 companies reporting today on the Economic Calendar including several big techs that typically move the market. Make double sure your checking current holdings for earnings.

Action Plan

Yesterday I mentioned with T2122 indicating an oversold condition that I was favoring a bounce for Wednesday. However, as the news rolled out about explosive devices sent through the mail, the market has other plans. It’s unfortunate that many traders were likely squeezed out and then saw the futures almost immediately rebound after the bell.

Looking over the internal damage, I believe we have finally reached that critical capitulation point where we will see institutional and value buyers begin to support current prices. Volatility will likely remain very high and with more than 300 companies reporting today very fast price action will make it very challenging. Keep in mind that if this is the market low at some time in the future, it is very likely to be retested. Of course, if some of the big tech names reporting disappoint today, the bears could easily push on lower. Plan your risk very carefully and the weekend approaches.

Trade Wisely,

Doug