Another overnight Gap.

Another overnight Gap

Another day another overnight gap as the market reacts to a chemical tanker fire in the Gulf of Oman creating a surge in oil prices.  The cause of the fire is still unknown but has sparked fears of an attack after apparent sabotage of another tanker just a few weeks ago.  US futures are pointing to a gap up open reversing the modest selling yesterday and holding the key psychological 50-day moving averages of both the DIA and SPY.

The QQQ is also getting a lift this morning an looks as if it will once again challenge its 50-day average resistance.  Short traders expecting more of a pullback after the sharp rise could find themselves in a short squeeze.  Expect price volatility to remain high challenging even the most experienced traders with the hypersensitivity to US/China trade rhetoric.

On the Calendar

calendar

On the Earnings Calendar we have the biggest day of the week with 28 companies reporting.  However, the only notable report is DLTH.

Action Plan

Oil prices are surging this morning after a tanker incident in the Gulf of Oman.  The cause of the fire remains unclear, but is raising fears of an attack just weeks after an apparent sabotage of another tanker.   Futures traded modestly lower as Asian market closed mostly lower overnight but rallied significantly with the surge in oil prices. 

As I write this Dow futures point to a gap up open of more than 75 points reversing yesterday’s modest selling and holding the DIA and SPY above their 50-day averages.  The QQQ looks to challenge its 50-day average as resistance at the open.  Could this create another pop and drop day?  Yes, but it could also create just enough catalyst to squeeze short traders out pushing the indexes higher. 

Trade Wisely,

Doug

Bearish Engulfing Candle Patterns

Bearish Engulfing Candle Patterns

The bearish engulfing candle patterns left behind on the DIA, SPY and IWM yesterday suggest the wild bullish rally may have run out energy but I would not expect the bulls to give easily.  Logic alone would suggest after such an energetic rally that little rest or pullback is likely.  However, if the bulls can defend the reclaimed 50-day morning averages as support a case for attacking all-time market highs is possible.

Unfortunately tough talk between US/China is not suggesting that a trade deal between the countries is unlikely at the G20 meeting seems to have given the bulls a little pause this morning.  Asian markets closed lower as their consumer prices hit a 15 month high and food prices spiked 7.7% in the May report.  European markets are also seeing some bearishness this morning with all indexes pointing modestly lower.  As the bulls and bears battle for control expect higher price volatility and sensitivity to trade news.

On the Calendar

calendar

On the Wednesday Earnings Calendar we have just 15 companies stepping up to the plate.  Notable reports include LULU & TLRD.

Action Plan

Tough talk suggesting that a US/China trade deal is very unlikely at the G20 seems to have dampened the bullishness we have seen in the last week of price action.  During the night China released consumer inflation numbers showing a 15 month high and food prices spiking 7.7% in May.  Asian markets closed lower across the board overnight as a result.  European markets are also seeing red this morning across their major indexes. 

As I write this US futures are modestly lower bouncing off the overnight lows but the CPI number at 8:30 AM Eastern has the potential to move the market before the open today.  The DIA, SPY and IWM all left behind bearish engulfing patterns yesterday suggesting a lower print but I would not expect the bulls to give up control easily.  Expect high price volatility and the possibility of quick intraday reversals as they duke it out.  We should be just fine if the bulls defend the reclaimed 50-day moving averages as support but if these key psychological levels fail the bears could be emboldened.

Trade Wisely,

Doug

Who would have guessed?

Who would have guessed

Is the move irrational behavior?  Goldman Sachs has warned that it is and the conspiracy theorists come out of the woodwork proclaiming a rigged market.  The fact is the market wants to go up for the time being.  Fight it and you’re likely to lose because a market can remain irrational much longer than we as retail traders can stay liquid!  Follow the price action and avoid predicting.  Could today bring in the sellers?  Yes, but it could also inspire the bulls to keep pushing higher.  Relax, focus on price and it will lead the way.

Who would have guessed the hope of a federal funds rate cut from 2.5 percent to 2.25 percent would have the power to reverse market sentiment lifting the Dow more than 1250 points in just 5-days of trading.  This morning with fresh presidential tariff threats making headlines the US futures point to yet another gap triple point gap up.  

On the Calendar

calendar

We have just 19 companies fessing up to their quarterly results today.  Notable reports include Play & HRB.

Action Plan

The power of the assumed future interest rate cut continues to propel the bulls higher even as signs of a weakening economy emerge in the US and continued threats of tariff increases from the Whitehouse.  The biggest part of yesterdays move occurred in the overnight gap and according to the futures we can expect yet another gap up of more than 100 Dow points. 

In the past I would try to figure out such price movements that seem to be completely irrational.  I would attempt to countertrend trade these relentless moves only get run over by market momentum.  Here are the simple facts.  The bulls are currently in control and they currently believe the market should be valued higher!  Personally I don’t believe that is right but what I think or feel has no bearing on what is occurring.  Trade the chart as it is not as you think it should be because the market doesn’t care what you think.  Could this turn out to be an irrational rally?  Yes, it could but it could also just keep going up.  Focus on price action and it will lead the way.

Trade Wisely,

Doug

Massive reversal of sentiment.

Massive reversal

What a massive reversal of market sentiment as the bulls find even more energy to extend this incredible relief rally.  Is this irrational exuberance? Perhaps, but it would be very unwise to try and fight it or predict when it will be over.  Remember the market can remain irrational much longer than you can remain liquid if you try to fight the bull. 

Asian markets closed higher on better than expected trade surplus numbers.  European markets are bullish but subdued ahead of UK economic data this morning.  US Futures point to more than a 100 point Dow gap after avoiding tariff increases with Mexico and news of a huge merger between United Technologies and Raytheon creating the 2nd largest defense company in the world.  If your long this morning remember gap are gifts taking profits or scaling.  Never allow greed to get in the way of taking a profit.  If you miss this rally then for goodness sake don’t chase it this late in the move with the fear of missing out.  Stay disciplined and exercise patience waiting for the next entry.

On the Calendar

calendar

On the Earnings Calendar we have about 30 companies reporting their quarterly results today with none that are particularly notable unless you happen to own one of them.  Make sure always to check earnings dates a part of your market preparation.

Action Plan

A deal with Mexico to avert tariffs, a larger than expected China trade surplus and a merger or United Technologies and Raytheon continue to inspire the bulls higher this morning.  US futures are suggesting more than a 100 point gap in an already very extended relief rally even as the president expresses the willingness to add 300 billion in Chinese tariffs.  Is this over-exuberance and a bit nonsensical?  Maybe, but as a retail trader it’s unwise to fight the bull or try to predict its conclusion because they can run right over you.

While I feel this relief rally is very extended and this mornings gap has the potential to end as a pop an drop I must stay focused on the price action trading what is not what I think it should be.  As Jessie Livermore once said, “The Market is never wrong but opinions often are”.  Stay disciplined to your rules taking profits or scaling out not allowing greed to interfere with taking profits.  Remember gaps are gifts!  If you have missed this rally then for goodness sake don’t chase it with the fear of missing out.  Be patient and wait for the next entry based on good price action and analysis rather than emotion.

Trade Wisely,

Doug

Light at the end of the tunnel?

Light at the end of the tunnel

There may be some light at the end of the tunnel this morning with news Mexico has made concessions that could avert the 5% tariff increase on Monday.  That would be a welcomed relief and the US futures point to a bullish open ahead of the Employment Situation report.  Asian market closed mixed overnight but European indexes are green across the board this morning. 

With possible interest rate cuts in the signaled by the Fed the 8:30 AM Eastern Employment Situation report could create a significant price reaction upon its release.  If you’re rooting for a rate decrease a miss of the 180K consensus estimate is likely to help Fed or even speed up their action.  A strong jobs number could impede or slow the FOMC decision and receive a negative market reaction.  No matter what happens consider the risk carefully you carry into the weekend after such a steep market rally.

On the Calendar

calendar

We have a light day on the Earnings Calendar with only 16 companies reporting.  Looking through those set to report but none are particularly notable.

Action Plan

According to reports Mexico has made concessions that may avert the 5% increase in Tariffs scheduled for June 10th.  If true that is very good news for US car manufacturers and a welcome relief to the overall market.  US Futures are once again looking to extend the relief rally that has recovered more than 900 Dow points in just three days so far. 

Of course the Employment Situation report at 8:30 AM Eastern will have something to say about how the market opens today.  If the number comes in less then the 180k consensus estimates the market may see that as good news supporting the idea of lowered interest rates in September.  Should the number come in strong the market may see that negatively as it works against the hoped-for rate cut.  One thing is certain this will be a heavily watched report that may inspire a significant market reaction upon its release.  Having seen such a steep rally this week consider the weekend risk as you plan your day.  Have a great weekend everyone.

Trade Wisely,

Doug

Overextended?

The extraordinary rally is a welcome relief but not one must wonder if the exuberance of the potential interest rate cut is now overextended.  One thing for sure is that we have moved a long way in a very short period of time and a little pullback would not be out of the question.  Be careful not to chase.  Asian market closed mixed but mostly modestly lower overnight.  European markets are currently green across the board as they await an ECB rate decision.

With the DIA, SPY and QQQ back above their respective 200-day averages repairing some of the technical damage in the charts but that will only be true if the bulls can prove to hold them as support.  We have the big Employment Situation number Friday morning so don’t rule out the possibility of light and choppy price action after the morning rush as we wait.  Remember some profit taking could begin at any time with the Dow having risen more than 700 points in just two days.

On the Calendar

calendar

We have fewer than 30 companies reporting quarterly results today.  Notable reports include OllI & SIG.

Action Plan

After two big days of rally on the hope of an interest rate cut futures are once pointing to a modestly bullish gap up open.  However that could certainly increase or decline as we move toward the open with International Trade, Jobless Claims, as well as Productivity & Cost numbers at 8:30 AM Eastern.  It will be interesting to see if the bull can maintain their enthusiasm after Goldman’s warning that the market has overpriced the possible Fed cuts. 

This morning we are also waiting on an ECB rate decision.  A surprise cut or increase across the pond has in the past moved US markets significantly in the past so keep an eye on those early morning futures.  Although the indexes are still well below their 50-day moving averages the DIA, SPY and QQQ have pop above their 200-averages reliving some of the technical damage.  If some profit takers do soon come in holding above these key averages will be very important.  Remember we have the Employment Situation number Friday morning so after the morning rush don’t be surprised to light and choppy price action as wait.

Trade Wisely,

Doug

Interest Rate Cut?

Interest Rate Cut

According to new reports the Fed is leaning toward an interest rate cut and the prospect of low-cost money has futures suggesting a substantial gap up this morning.  Asian markets closed mixed but mostly higher overnight and although Europe is pondering a punishment for Italy’s continued deficit spending their indexes are bullish across the board this morning.  But does that mean we should throw caution to the wind and chase into this morning gap? No.

The fear of missing out is a powerful emotion but considering the magnitude of the move over the last 24 hours chasing in could prove to be a painful lesson in patience.  Consider the possibility of a pop and drop which would not be out the question after such a big reversal.  Gaps are gifts and I in fact will be looking at the morning gap as a reason to take profits.  Maintain your discipline waiting to see if buyers step up to support the morning gap before considering new long positions.

On the Calendar

calendar

On the hump day Earnings Calendar we have just under 30 companies reporting.  Among the notable are FIVE & VRA.

Action Plan

The top story splashed across my CNBC app this morning is “The Fed is indicating that a rate cut is coming”.  Markets love the prospect of lower cost money and we see both Asian and European exchanges rising on the hope.  Consequently, the US futures are signaling a sharp gap up this morning around 150 Dow points.  That would constitute about a 650 point rise in just over 24 hours.  As exciting as that is, too much of a good thing in such a short period could bring out the profit takers.

The fear of missing out is a very strong emotion but chasing into the open after such a big reversal in price can prove to be a very expensive lesson on patience.  A lesson, that had to be taught to me more times than I care to admit.  Rather than chasing into positions on big moves such as this I use it to take profits and scale out of trades.  Gaps are gifts that I tend to open regularly to collecting the gains and lowering the risk of the volatile price action.  I’m not trying to predict anything but this mornings gap could easily set up a pop and drop.   Stay focused and maintain your discipline waiting to see if buyers step up to support the morning gap before considering new long positions.

Trade wisely,

Doug

Anti-Trust Investigations

Anti-Trust Investigations

With the news the DOJ may begin anti-trust investigations of Google, Amazon and Facebook the QQQ dipped into correction territory yesterday.  Amid all the current market uncertainty they choose now to pile on more uncertainty?  There timing is impeccable considering that Fed member James Bullard said it might be necessary to lower rates sooner than later to deal with the economic impacts as the trade war uncertainty persist.

Futures are pointing to gap up open around 100 Dow points and perhaps signaling a relief rally may be in order.  Remember a relief rally can be very brief so don’t mistake a little short covering as a recovery.  We have significant technical damage that needs to be repaired as well as key price resistance levels above that must be reclaimed before recovery can begin.  Consider your risk carefully and remember price volatility is likely to remain high.

On the Calendar

calendar

On the Earnings Calendar we have just 19 companies reporting quarterly results.  Notable reports include GME, CRM, CBRL & TIF.

Action Plan

It seems rather remarkable amid trade war concerns, Mexican tariffs and global slow down worries the DOJ has decided to begin anti-trust investigations against Google, Amazon and Facebook after years of complaints.  Their timing is impeccable don’t you think?  James Bullard a voting member of the CBOE suggested yesterday that trade war concerns may warrant a reduction in the interest rate raising fears of economic impacts.  His comments created significant price volatility as the market grappled with the implications.

US Futures are currently suggesting a gap up of more than 100 points this morning and perhaps signaling a relief rally to test resistance levels of price and downtrend.  There is tremendous technical damage so I would not expect the bulls to rush back in a big way but perhaps we have found at least a short-term bottom after the QQQ officially reached correction territory yesterday.  Be careful not to chase the morning gap to avoid the possible pop and drop pattern like we experienced yesterday.  Remember volatility is likely to remain high so intra-day whips and reversals may challenge the resolve of even the most experienced traders.

Trade Wisely,

Doug

Global Trade Uncertainty.

Global Trade Uncertainty

As the President makes a European tour and dines with the Queen global trade uncertainty are having seeing impacts on markets around the world.  Asian markets closed lower and European are also in the red this morning on the deepening uncertainty.  US futures have recovered significantly from overnight lows but continue to point to lower open this morning.

There is nothing to inspire the market on the Earnings Calendar this morning so hopefully the PMI & ISM numbers will help provide some clarity to calm the nerves of traders and investors.  Although we can expect the price action volatility to very challenging the short term oversold condition could provide us at least a modest relief rally in the near future.  Unfortunately, considerable technical damage and price resistance above does not favor a speedy recovery unless we find some resolutions to the trade uncertainty.

On the Calendar

calendar

On the Earnings Calendar we have just 20 companies reporting with nothing particularly notable today.

Action Plan

Swirling uncertainty continues to plague the market as China ramps up the rhetoric issuing a white paper blaming the US for the Trade War.  Asian markets closed modestly lower across the board.  As the president makes a European tour there markets are also modestly lower as global trade worries deepen.  As a result, US Futures reflected the uncertainty being down nearly 175 points during the night but slightly recovering as we move toward the open.

Perhaps the PMI Mfg, ISM Mfg and Construction Spending reports on the Economic Calendar this morning can help to provide some clarity and settle the nerves of traders and investors.  As the technical damage deepens expect price action volatility to remain very challenging with sudden overnight and even intr-day new driven reversals.  Anything is possible if more bad news is released but the short-term oversold condition will have me watchful for at least a modest relief rally in the near future. 

Trade Wisely,

Doug

Punitive Tariff Increases

With illegal boarders crossings reportedly rising to 4500 per day the President shocked the market yesterday afternoon with punitive tariff increases on Mexican goods.  The tariffs will begin with a 5% increase on June 10th with an increase to 10% in July and 25% in October unless Mexico takes steps to stem the tide of illegal crossings.

The shock and uncertainty of this action have the futures pointing to a substantial gap down this morning that threatens to break some key price support levels.  Raising this much uncertainty ahead of the weekend has the potential to create some panic among already battered traders and investors.  Buckle up the road could be very bumpy ahead.

On the Calendar

A light day on the Earnings Calendar as we begin to wind down the second quarter earnings season.  The only particularly notable report today is BIG coming out before the bell.

Action Plan

Yesterday’s choppy price action reflected the uncertainty the faces leaving behind more questions than answers.  After the bell the President then surprised the everyone announcing he will raise tariffs on Mexico by June 10th if they don’t begin to stem the tide of illegal crossings that are overwhelming border enforcement.  According to reports the US is currently holding over 80K illegals with approximately 4500 added each day.  According to the Whitehouse the tariffs will be at 5% and increasing to 10% in July and 25% shortly after that if the problem persists.

This morning the futures are reacting strongly to the surprising news suggesting a gap down of more than 200 Dow points at the open.  Grappling with the possible ramifications and uncertainty of it all has the potential to trigger a bit of panic selling if key supports fail with the weekend approaching.  The best we can do is stay focused on the price action and disciplined to our rules, avoiding emotional decision making that often creates costly mistakes.

Trade wisely,

Doug

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