Cash is a position often underutilized.

As short-term swing traders, we often get caught up in the idea that every day is a good trading day.  Yesterday should have proved that idea to be untrue.  Sitting in front of our computers, we get bored and feel the need to make trade decisions even when the market is proving to chop up our accounts.  The problem is, most traders underutilize the decision to remain in cash.  Cash is a position, and in times like this, it can be the best possible trade decision.  If you find yourself tired of getting chopped up in this whippy price action losing back to the market your hard-earned profits, perhaps it’s time to stop trading.  There is an old saying, if you find yourself in a hole then stop digging!

On the Calendar

Tuesday begins with the S&P CoreLogic Case-Shiller number at 9:00 AM eastern time.   CoreLogic is a home price index tracking monthly changes in real estate values.  Gains so far, this year have been strong, and forecasters see the April number increasing by 0.6%.  I wonder how much longer we can see prices increase while real wage growth continues to lag way behind.  At 10:00 AM we get a reading on Consumer Confidence.  Customer attitudes on the economy have been falling back from post-election highs.  Consensus suggests yet another move lower this month.  Although these reports are important, they are unlikely to move the market unless they issue a number that surprises the market.

We have 2 FED speakers during market hours today with one of them being Janet Yellen herself at 1:00 PM.  On the Earnings Calendar, we have 20 companies reporting earnings.  A couple of note that members have been trading are KBH and DRI.

Action Plan

My warning of caution with the gap up open yesterday turned out to valid as the market issued a very cruel whipsaw to those who chased in emotionally.  The DIA clung to price support, but the SPY’s reaction to price resistance pushed the index back to lower range of the chop zone, now in its 18^th day.  The QQQ left behind the most bearish pattern of all the indexes with a dark cloud cover pattern right at resistance.  Surprisingly, IWM turned in the best performance of the day resisting sellers and closing just above resistance levels.

Futures are pointing to a slightly lower open but not nearly as much as I would have expected based on yesterday’s performance.  I think there is a very good chance we remain stuck and very choppy.  Yesterday should be yet another proof how dangerous and potentially damaging to your account choppy markets can be.  I will continue to exercise caution favoring capital perseveration over risk until the price action shows improvement.  For me that means more standing aside watching and waiting.  When I do trade, they will be smaller than normal positions sizes.  Always remember Cash is a position!

Trade Wisely,

Doug