Going on Sale
Stocks are going on sale! I have been expressing concern over the last few weeks that fewer and fewer stocks were holding the market up. I have mentioned several times over the last several of months about a rotation into defensive sector stocks as well. Consequently, I have been expecting a pullback in the market, but I admit to being completely surprised by the panic and the magnitude of the selling we experienced yesterday!
The best move for most swing traders is to stand aside and let it happen while keeping your capital safety tucked away in your account. Technical damage like this will take a long time to repair, and the fast price action and high volatility will make profiting very challenging even for the most experienced traders. As bad as it may seem at the moment keep in mind that this is a good thing. Stocks are going on sale and if we patiently wait there will eventually be great deals for us when it’s over.
On the Calendar
A busy Thursday on the Economic Calendar but with a major selloff underway, I’m not sure anyone will pay much attention to the details. Possible market moving reports are, 8:30 AM Eastern CPI & Jobless Claims, Natural Gas Report at 10:30 AM, Petroleum Status Report at 11:00 AM, Treasury Budget at 2:00 PM and the Fed Balance Sheet at 4:30 PM. There are also four Bond Events between 11:00 AM and 1:00 PM ant the Money Supply report at 4:30 PM.
On the Earnings Calendar, we have 12 companies reporting. Most notable are DAL and WBA which both report before the bell.
Action Plan
I said yesterday that a test of recent lows was not out of the question but holy cow I didn’t expect it would trigger such a massive run for the door. The VIX pretty much says it all having spiked 43.95% yesterday as fear turned to outright panic. The selling spread around the world like wildfire as Asian markets plunged and European markets sharply lower this morning. The pain continues this morning with US Futures pointing to gap down of more than 200 Dow points at the open.
So what is a retail trader to do in the midst of such technical damage? The only thing we can do, protect your capital and let it happen! Don’t fight it, and don’t try to predict it or your likely to have you’re head handed to you! The implied volatility increase in options will make them very challenging to trade. Market Makers will widen the bid/ask spreads and when a rally does occur I the IV will collapse making it very difficult to profit even if you are exactly right on direction and timing. The good news is selling of this magnitude will likely get at least this first leg of the correction over soon. Unfortunately, extremely high volatility is likely here to stay for the near future.
Trade Wisely,
Doug
Temporary Stalemate?
Asia modestly higher overnight and European markets modestly lower the US Futures seem to have reached a temporary stalemate suggesting a flat open. I’m expecting an oddly slow and choppy morning with both the bulls and bears struggling to find inspiration. With the 4th quarter earnings season perhaps they are simply content to wait with the potential interest rate increase impacts starting to weigh heavily on the mind of the market.
Certainly, a rally to test resistance is possible, but there seems to be an equal chance that a retest of recent lows. Stay very focused on price action as a stalemate like this can suddenly spring to life and is very susceptible to head fakes and whipsaws. With earnings season just around the corner, we should expect higher volatility to stick around for several weeks. Plan your risk carefully.
On the Calendar
Hump-day on Economic Calendar begins with the Mortgage Applications at 7:00 AM Eastern. At 8:30 PM the PPI at 10:00 AM expects a rise of only 0.2 percent for the September headline number. We have the Atlanta Fed Business Inflation Expectations as well at Wholesale Trade number at 10:00 AM. A 3-yr Note Auction @ 11:30, Fed Speaker a@ 12:15 PM, 10-yr Note Auction @ 1:00 PM, and another Fed Speaker at 6:00 PM to close the calendar day.
On the Earnings Calendar, we have eight companies reporting the most notable, FAST, stepping up before the bell today.
Action Plan
A very choppy day yesterday as the market seemed content to consolidate near recent lows as the market becomes increasingly concerned about the effects of the FOMC rate hikes. I think the bigger concern is that Earnings Season begins next week and companies have a lot of live up to at current valuations. As a result, increased volatility is likely over the next few weeks with big morning gaps and challenging price action.
With Asian markets having closed modestly higher across the board overnight and European markets currently down across the board, US Futures seem a bit confused as to what to do this morning. As I write this, the Dow Futures are currently dead flat. Perhaps the PPI number at 8:30 AM Eastern will give the market some inspiration, but as of now, I’m planning for a very slow and choppy morning. After that its anyone’s guess.
Trade Wisely,
Doug
A Piling on of bad news.
When the market starts to turn lower, it always seems to attract a piling on of bad news. Yesterday, after the close, the IMF lowered world growth estimates siting trade disruptions. As a result, Asian and European markets reacted lower, and consequently, the US Futures are suggesting another gap down punishing those that held overnight. The buy the dip crowd will likely feel some pain this morning.
Don’t rule out the possibility of a test of yesterdays but with any luck, the bulls will find the energy to hold a higher low and establish a safer entry point than just blindly buying the dip. Expect volatility to remain high with challenging price action that could include substantial whipsaws and head fakes. Be very careful and remember you don’t have to the trade every day to be a successful trader and remember cash is a position.
On the Calendar
The Tuesday Economic Calendar kicks off early with the NFIB Small Business Optimism Index at 6:00 AM Eastern. At 8:55 AM we will hear from the Redbook report, we have a Fed speaker at 10:00 AM, four Bill Auctions between 11:30 AM and 1:00 PM. Late this evening we have Fed speakers at 9:15 PM and 10:35 PM Eastern.
We have only four companies reporting earnings today. Before the market, we have AZZ & HELE with CNBKA & IDT reporting after the close of trading today.
Action Plan
Yesterday played out about as expected ending the day with hope as the Bulls came in chanting “buy the dip.” I truly dislike that phrase! It encourages irresponsibility and gambling as traders jump blindly into trades with no thought to the fact their action could be absolutely wrong! Those that blindly jumped yesterday before the close will obviously feel the error of their ways with the futures pointing to a gap down of more than 100 points this morning.
After the close yesterday, the IMF lowered world growth estimates siting trade disruptions. Emerging Markets which have been in a downtrend for most of the year will remain under pressure according to the IMF due to there weakening currency against the US Dollar. After the morning gap down expect some whippy price action and don’t rule out the possibility of a pullback to test yesterdays low. If tested, I think there is a high probability it will hold as support at least for the short-term. The very best scenario is if the Bull step in holding a higher low and a willingness to demonstrate follow-through buying. A pullback that holds a higher low and provides a lower risk entry? Where have I heard that before? Your choice, enter with a plan or blindly buy the dip.
Trade Wisely,
Doug
Unique Technical Picture
Traders face a rather unique technical picture this morning. The QQQ, & IWM have obviously suffered some significant technical damage that could take weeks to repair. At the same, time with the SPY holding onto its 50-day average and the DIA holding onto the support of its current uptrend a quick recovery would appear very doable. Such an imbalance among the indexes could make for some very challenging price action and contradictory signals.
Both Asian and European saw more selling overnight, and the US Futures are pointing to a gap down open this morning. However, with having tested important support levels on Friday, I would keep my eyes glued to price action looking for clues of at least a small bounce after the open. Please, keep in mind that volatility could create significant whipsaws and fast price action not suitable for inexperienced traders. Bottom picking is a very dangerous business and to be honest a very nasty habit. Wait for good price action clues and always have a quick exit plan if you’re wrong. If you try to fight the market as a retail trader, plan to watch your money disappear.
On the Calendar
A very light day to begin the 2nd week of October on the Economic Calendar. There is only one report the entire day, and the TD Ameritrade IMX number is not a market-moving number.
On the Earnings Calendar, we have only six companies reporting quarterly results. Unless you happen to be holding one of these companies, there is nothing particularly notable about those reporting today.
Action Plan
Markets appear to have had a pretty rough night with Asian markets closing down across the board. European are also currently under pressure this morning with the FTSE, DAX, and CAC continue to sell off. Consequently, US Futures are also under pressure selling pressure this morning with the Dow currently suggesting a gap down of more than 75 points. On Friday the SPY closed very near its 50-day average while the QQQ sliced through the 50 finally finding some price support around 178. Although the DIA experienced selling it’s the only index that found the support of its uptrend holding above the 20-day average. The poor IWM is the complete opposite having plunged all the way down to it’s 200-day average a creating significant technical damage.
The sharp spike in the VIX suggests a higher level of volatility could be with us for a while with also means higher prices for options contracts. However, with T2122 in the bullish reversal zone, I would watch for the possibility of a bounce after the opening gap down. Remember the clues will always be in the price action. Don’t anticipate a bounce, wait for proof that sellers are out of energy and buyers are stepping up to take over. We could simply consolidate near the lows before resuming the sell-off so be patient an watch for clues. Also, the possibility of quick intraday whipsaws, head fakes, and fast price action would make the day very challenging.
Trade Wisely,
Doug
Bull and Bear Battle
Today could be a very interesting Bull and Bear battle. At this time the Bulls continue to hold the high ground with the DIA, SPY, and QQQ holding onto current trends. However, with the US Futures currently pointing to a gap down open this morning, the bears have a chance to produce a bearish Island Reversal pattern.
As of late morning, rallies have met with afternoon profit-taking raising the questions about the strength of the bulls as we test market highs. Perhaps the Bulls are simply playing possum to get enough trades short to pull off a short squeeze rally. Unfortunately, with the overall breadth down-trending we should prepare for the possibility of a market pullback. Let me be clear; there is no reason for panic, but there is reason for caution and preparedness. Stay focused on price action for early clues to direction.
On the Calendar
We have a light day on the Economic Calendar this Tuesday. Early this morning the Motor Vehicle Sales report expect an improvement for total unit sales in September with a reading of 16.9 million annualized rate vs. 16.6 million in August. The Redbook comes out @ 8:55 AM Eastern, a Fed Speaker @ 10:00 AM, a Bond Auction @ 11:30 AM, the Fed Chairmen himself closes out the calendar day speaking at 12:00 PM.
On the Earnings Calendar, we have 12 companies reporting today with PAYX and PEP as the most notable and both before the bell. PEP reported well very early this morning.
Action Plan
As we would expect, the market was relieved, and reacted very bullishly, to the completion of the North American Trade agreement. Unfortunately, the big rally struggled with the price resistance near all-time highs as profit-taking began to take hold. The QQQ printed a new record high by a single point before sellers started to take over. Asian markets closed mixed but mostly higher, but European Markets are currently seeing red across the board.
US Futures are currently under pressure this morning currently suggesting a gap down open. As of this moment, the market looks to open below yesterdays open in the DIA, SPY, and QQQ which has the potential to produce a bearish island reversal pattern. Overall up-trends continue to favor the bulls except for the IWM that yesterday produced a nasty bearish engulfing candle the broke below the long-term uptrend. The bears could easily gain the upper hand unless the bulls mount a solid defense. I suggest approaching the market this morning with a little caution this morning until we get a clearer picture. As always stay focused on price action for clues.
Trade Wisely,
Doug
New Trade Agreement
A huge bullish gap to begin the first day of trading of the 4th quarter after inking a new trade agreement between the US and Canada fired up the futures last night. Asian markets closed up across the board, and European markets are currently showing green across the board. As I write this, US Futures suggest a huge morning gap 200 points.
If you’re holding long positions, remember gaps are gifts! As a result, I will be looking to scale out or even close some positions taking that gift to the bank. Remember big news driven gaps create a lot of emotion and the Fear of Missing Out is very powerful causing many traders to leap before looking. Whipsaws are common at or near market highs so be careful not to get caught up in the morning hype blindly chasing in at the open. Is it possible the open is the highest print of the day? Yes, it’s possible, so stay focused on price action and avoid chasing.
On the Calendar
We begin the first day of the new quarter with a Fed Speaker at 8:30 AM Eastern on the Economic Calendar. At 9:45 AM the PMI Mfg. Index expects a reading of 54.5 vs. September’s 55.6 flash number according to consensus. The ISM MFG at 10:00 AM is the most likely market-moving report of the day and expects a small decline to 59.9 vs. the very strong 61.3 August reading. Also at 10:00 AM, Construction Spending according to consensus will see in increase of 0.5 percent vs. July’s marginal 0.1 gain. We have a Fed Speaker at 11:00 AM and a Bond Announcement, two Bond Auctions at 11:30 AM, with yet another Fed Speaker to wrap up the calendar day at 12:15 PM.
On the Earnings Calendar, we have 15 companies expected to report today with the most notable being SFIX after the bell.
Action Plan
A new trade agreement between the US and Canada was reached just before reaching the Presidents deadline has really fired up the Bulls this morning. Currently, the Dow would gap 200 points higher on the news with all the other indexes surging higher as well. Those holding short positions like my long VXX Calls will experience pain this morning caught in this Bullish trap.
However, be careful not to get caught up in the morning hype and remember a big gap up at or near market highs can experience nasty whipsaw price action. Wait for proof after the open that real buyers are stepping in support of the gap before jumping into the fray. Long positions could see a nice surge in profits this morning. Gaps are gifts, and I will most likely close part or all of some trades to unwrap those gifts and bank the gains.
Trade Wisely,
Doug
More Questions than Answers!
The light volume choppy rally yesterday was ultimately unable to hold onto gains by the end of the day leaving more questions than answers. There were noticeably fewer companies moving up supporting the rally. There is nothing in the charts that’s particularly bearish, but I do think there is a reason to be a little cautious as we head into the weekend.
It’s not surprising that the Futures are suggesting a lower open this morning but keep in mind this is the last trading day of the quarter, and some intentional window dressing is not out of the question. However, if by chance the bears have the strength to follow through with some downside pressure we could see some quick selling if trends and support levels begin to fail. Set aside your bias focus on price action. Remember anything can happen over the weekend so plan the carefully the risk you carry into the weekend.
On the Calendar
Friday has three potential market-moving reports on the Economic Calendar. At 8:30 AM Eastern Personal Income and Outlays expect to show a personal income increase of 0.4 percent in August while personal spending rose just 0.3 percent. Then at 9:45 AM the Chicago PMI is expected to indicate steady strength with a consensus of 62.3 reading in August. The Consumer Sentiment consensus at 10:00 AM to remain very strong with an expectation of a 110.8 reading in September. We have the Baker-Hughes Rig Count @ 1:00 PM and a Fed speaker after the bell at 4:45 PM to end the 3rd quarter calendar.
On the Earnings Calendar, we have 15 companies reporting today. MTN, reporting before the bell is the most notable report today.
Action Plan
After what seemed to be a relentless light volume push higher during the day the bulls found themselves unable to hold the advance into the close. The indexes left behind less than confident candle pattern on the DIA, and SPY while the IWM largely rested. The QQQ was the only index suggesting much bullishness at the end of the day holding on to the majority of the days gain by the close. Asian markets ended the week on a high note closing higher across the board, but European markets are just the opposite seeing red across the board.
Consequently, it’s on a big surprise to see the US Futures pointing to a lower open this morning. With this being the last trading day of the 3rd quarter don’t rule out the possibility of window dressing allowing the big funds the ability to wrap up the quarter strong. However, if the bears are able to mount a sustained attack, keep an eye on trends and support levels. If they hold as support, we can go into the weekend without much worry, but if levels begin to fail, we could see some quick selling to reduce weekend risk. Have a wonderful weekend everyone!
Trade Wisely,
Doug
Price Gyrations
The market experienced the typical price gyrations after the Fed put all its card on the table yesterday afternoon. Sellers were expressing their disappointment at the close, but this morning the Futures are trying to open the day positive. With several market-moving reports before the open anything is possible and swing traders may still find it difficult to find an edge this morning.
Overall trends are still bullish, but the bulls are currently struggling to find inspiration with the Fed projecting more rate increases on the way. However, the bears are also struggling and thus far have not had the inspiration to maintain a serious threat. As the indexes test the strength of current trends, watch for the potential of quick reversals and whipsaw. Our edge will return, but we must wait for it and avoid forcing trades as the market thrashes around trying to find a directional conviction.
On the Calendar
A very busy day on the Economic Calendar today. At 8:30 AM we have four potential market-moving reports. Durable Goods Orders, GDP, International Trade in Goods and Jobless Claims. Also at 8:30 AM, Corporate Profits, Retail Inventories, and Wholesale Inventories. Pending Home Sales come out at 10:00 AM followed by the EIA Natural Gas report at 10:30. The Kansas City Fed Manufacturing index is at 11:00 AM with 3-Bond events between 11:00 AM and 1:00 PM. We have two Fed Speakers this afternoon with Kaplan at 2:00 PM and the Fed Chair at 4:30 PM. Farm price @ 3:00 PM with the Fed Balance Sheet and Money supply to close the calendar day at 4:30 PM.
On the Earnings Calendar, we have 19 companies reporting today. Before the bell, CAG, CCL, MKC, and RAD are among those reporting. After bell AEHR & CAMP reports along with three others.
Action Plan
After the Fed announced a 25 basis point rate increase and suggested, there are four more possible increases possible the launched into its normal gyrations but ended the day with the market expressing some disappointment. The Dow closed down 106 points but stopped short of breaking the current uptrend. The SP-500 and the NASDAQ also ended the day with sellers in control but held onto the bullish trends at the close while the Russell slid sharply south closing below its short-term trend.
Asian markets closed down across the board with European markets currently flat to mostly lower. US Futures continue to sing from the same sheet of music pumping up for a bullish open this morning. However with 8-Economic Reports an hour before the open, four of which are potential market-movers anything is possible. The best we can do is wait and watch for a directional conviction.
Trade Wisely,
Doug
Rate Decision and Forecasts
Yesterdays light choppy and somewhat confusing price action across the indexes was not too surprising as we wait for the FOMC interest rate decision and forecasts. As I suggest was possible the gap up yesterday in the Dow produced a pop and drop pattern and this morning is set up very much the same the way. After the opening rush, light choppy price action is likely to resume until the FOMC decision which normally produces very fast price swings that even challenge every experienced intraday traders.
Up-trends are still bullish and other than the Dow; indexes continue to hold above key supports. Unfortunately, ahead of such big potential market-moving news adding risk gives up your edge and becomes a straight up gamble for swing traders. As a result, I have reduced my holdings and plan stay that way until my edge returns. Plan your risk carefully because anything is possible.
On the Calendar
A big day on the Wednesday Economic Calendar gets started early with the Mortgage Applications report at 7:00 AM Eastern. The New Home Sales report at 10:00 AM Eastern expects a 630K reading in August little changed from the 627K in July. At 10:00 AM is the Investor Confidence Index report followed by the Petroleum Status Report at 10:30 AM. Then at 2:00 PM Eastern is FOMC Announcement and Forecasts with the Fed Chair Press Conference starting at 2:30 PM.
On the Earnings Calendar, we have ten companies stepping up to report results. Of all the reports today the likely most notable will be after the close when BBBY reports. If you’re not already in the good habit of checking earnings report against current holding now would be a good time to start. Fourth quarter earnings season is just a few weeks away.
Action Plan
Another day of challenging price action with the DIA selling off while the QQQ worked to go in the opposite direction. The SPY and the IWM took another day of rest choosing to chop sideways on lower than average volume. Expect more light choppy price action as the market waits for the FOMC decision on rates as well as the Forecast. After the announcement expects some very wild price action that could include several reversal signals over the following hours. Choose your risk carefully.
Futures are once again pointing to a gap up open. Don’t get caught up in the hype chasing the open especially ahead of a big news day. Yesterday the Dow produced a pop and drop pattern as I suggested was possible, and this morning the same possibility exists. I’m going into the day, light in my account and plan to stay that way because adding positions ahead of the FOMC is giving away all my edge as a swing trader. As one of our former presidents once said, it wouldn’t be prudent.
Trade Wisely,
Doug
FOMC Meeting
Trading around an FOMC meeting can prove to be very challenging for most swing traders. This morning the Futures are putting on a brave face as if the market has no concern about an interest rate increase. Perhaps that true but remember the market hates uncertainty, and the FOMC Forecast is one of those big unknows that can give the market indigestion.
It is also important to note that light and choppy price action is typical as the market waits for big news events. Consider that before rushing into positions and adding risk today. The last thing we want to do is end up in trade trades that sputter and stall ahead of the announcement which often creates wild price action where anything is possible. Consequently, I want to use an extra measure of caution. Plan your risk carefully and watch for whipsaws and head fakes with this mornings gap up near market highs.
Trade Wisely,
Doug
Sorry everyone I had a power blink just after writing the morning note and the entire thing was lost. I quickly rewrote the first two paragraphs but did not have to recreate the entire note.
