FANG has a Cavity
FANG has a Cavity
It would appear that after the very disappointing earnings results from AMZN and GOOG that the so-called FANG has a cavity. Indeed a very big cavity that spread its pain all around the world. Both, Asian and European market are both lower this morning. US Futures indicate that yesterday’s 400 point Dow rally will be completely wiped out this morning with an ugly gap down open.
As painful as this might be for you this morning I want to leave you with a positive thought as we head into the weekend. Good stocks are falling to fire-sale prices which mean there will be some amazing bargains when this is over. For most traders, the best course of action in such high volatile times is to stand aside and protect your capital. If you try to fight it, your money will disappear. Better days are on the way, just be patient and wait for your edge to return.
On the Calendar
We have a light day on the Friday Economic Calendar, but it begins with the heavyweight market-moving GDP 8:30 AM report. The consensus estimate expects a 3.3 percent annualized vs. 4.3 percent in the second quarter. The GDP price index is seen declining to 2.0 percent vs. the 3.0 last reading. Consumer Sentiment is expected to show confidence to remains very strong with a reading of 99.0 in October. We wrap up the calendar week with the Baker-Hughes Rig Count at 1:00 PM.
On the Earnings Calendar, there are 67 companies expected to report results.
Action Plan
With the hugely disappointing results in the big tech earnings after the bell futures are pointing to a very nasty gap down this morning. AMZN is currently indicated to lose more than $170 a share from yesterdays close with GOOG close behind dropping nearly $70 a share. It would seem FANG has a huge and painful cavity!
Yesterday’s 400 point Dow rally looks to be completely wiped out at the open today. The big question now on the mind of the market; Will Thursday’s low hold as support? If not the next strong level of support is about 600 points lower in the Dow and 75 points lower in the SP-500. The pain has spread around the world with Asian markets closing sharply lower and European markets all in the red this morning. With a 400 point overnight reversal, expect very fast price action and the possibility of panic selling if the supports fail. Better days are coming, and with stocks dropping to fire sale prices there will be a great opportunity when this is over. Have a great weekend everyone.
Trade Wisely,
Doug
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.
Yesterday’s wild price fluctuations may have left many traders with a nasty case of whiplash. Unfortunately, it looks like the volatility is here to stay and with more than 200 companies reporting earnings today and more than 300 tomorrow, anything is possible.
Lately, I repeatedly mentioned the necessity of caution with the current market condition. It’s a message that traders never like to hear, but that doesn’t make it any less true. Currently, the futures are pointing to a gap down on nearly 400 points. A brutal reminder that the market will punish those trading a bias rather than heeding the warnings in the price action of the chart.
Put your tray table in the upright and locked position, fasten your seat-belts low and tight across your lap because traders should expect some turbulent price action this week. With nearly 900 companies stepping up to report in the midst of a market correction could be volatility’s definition of the perfect storm. Expect very fast price action and daily market gaps as just a couple of the challenges traders will face.
Although we have access to a plethora of fancy indicators on your charting platform simply technical analysis of price action support, resistance, and trend still rule supreme. Price is King! Tuesday’s, big rally pushed the major right into price resistance levels. Yesterday, resistance did its job preventing a follow move higher, and the clues to that possibility were evident to those that study price.
Trading during the volatility of a major selloff is always challenging but double up on the volatility adding in an earnings season, and traders will likely find it very difficult to maintain an edge. Trading without an edge is gambling with the house odds stacked heavily against you. Gambling can certainly be exciting at the beginning but keep in mind at the end of the day there are no medals for bravery in the market.
With the ramp of 4th quarter earnings season coupled with high volatility of the recent selloff, expect daily market gaps and possible overnight reversals to make swing trading very challenging over the coming weeks. Fast morning price action with whipped up emotion as result roll-out will likely produce a lot of head fakes whipsaws in the intra-day price action.
I always find it amazing how a market selloff brings out a litany of talking heads with predictions of new highs or outlooks of gloom and doom as if they have the power to see the future. It’s honestly laughable because most of them are just talking up their positions. I submit to you that listening to all that noise is unproductive and very likely damaging to your trading success.
The wild ride continues with futures indicating a huge overnight bounce off of yesterday closing low. Also, huge in the hearts and minds of trader will be the Fear-Of-Missing-Out and the desire to revenge trade to get their money back. Unfortunately, with the Dow indicating a bounce well over 300 points at the open you will have to have an iron constitution willing to chase into a market likely to whip violently.
