Yesterday’s huge reversal triggered a massive short squeeze forcing those caught short forcing them to buy to cover positions.  Those that held their short positions through the night hoping for another reversal will certainly experience more pain this morning with Futures pointing to a trip point gap up at the open.  If you are holding long positions, a big Congratulations is in order but remember to take profits because this massive volatility is likely not over. 

The Dow gained more than 1400 points in just 2-days!  A gap up this morning could easily bring in profit-takers as they avoid the weekend risk.  Congress has now adjourned leaving the Federal Government shut down for the rest of the year.  With many traders likely planning to extend their New Year’s holiday volume could be lacking on Monday and remember the markets will close on Tuesday.  There is a lot to consider when planning your risk heading into this weekend.

On the Calendar

A light day on the Earnings Calendar with only Eight companies reporting with none that are particularly notable unless you happen to be holding them.

Action Plan

With the Congress now adjourned until next year, it looks as if the Federal Government will remain shut down until sometime next year.  We should continue to expect the massive volatility to continue which makes holding positions into he the weekend carry significant risk.  US Futures this morning are pointing to a significant gap up follow-through on yesterday’s huge reversal whipsaw that triggered a massive short squeeze.  Those that held short positions through the night will be in pain this morning keeping the pressure on the short squeeze, but if you’re holding long positions I would like to remind you that gaps are gifts!

The potential of another reversal whipsaw heading into the weekend is certainly not out of the question so be careful not to allow greed, prevent you from taking profits.  Personally, I would like to see a bullish close today but with the extreme volatility and the Dow having gained more than 1400 points in just two days some profit taking to avoid the weekend risk would not be a big surprise.  Also, keep in mind that volume on Monday (New Year’s Eve) is likely to drop and price action becomes erratic as traders head out for the holiday.  Plan your risk accordingly.

Trade Wisely,

Doug

With he seeing nothing but political turmoil and uncertainty ahead created the worst Christmas Eve rout in market history.  As Congress returns and the border wall debate resumes traders will have to stay very nimble because the Washington news spin cycle could create some extreme market whips.  A market condition for only the most experienced day traders.  Swing and position traders have no edge as the extreme price action chops up accounts of those unwilling to stand aside.

Technically speaking the market the market is in a short-term oversold condition that would normally indicate a relief rally is close at hand.  However, with the current political turbulence sellers could easily remain in control much longer than we can stay liquid waiting and hoping for a bounce.  One news report or Tweet is all it would take reversing the market direction in about half a heartbeat.  Protect your capital and remain disciplined as uncertainty continues to whip.

On the Calendar

Today we have 16 companies reporting earnings with LIVE being the most notable of the day.  Make sure to continue checking reporting dates against current holdings.

Action Plan

If you ever needed an example of just how much the market hates uncertainty you only need to see the 653 point selloff on Monday; the worst Christmas Eve performance in market history.  Although there has been no change in the uncertainty the US Futures are pointing to a bullish open this morning.  Of course, that’s assuming they can maintain those positive feeling throughout the morning.  Given the volatility of late, we have to assume anything is possible at the open.

The President seems to have dug in his heels regarding the border wall and so has the Senate which refuses to consider the House bill that includes funding.  As Congress returns from Christmas break and the battle resumes the market will be sensitive to any news reports on the subject.  Expect violent swings as the market reacts to the Washington spin cycle.  Considering the market has been straight down for the last eight days of trading we should typically be on the watch for a relief rally.  Unfortunately, until the market sees some resolution to the political uncertainty sellers could easily remain in control.

Trade Wisley,

Doug

How much risk are you willing to take heading into a weekend with so much political uncertainty?  A question that many traders will be pondering today as the congressional budget battle enters its last hours before shutting down the government.  Will they agree before midnight and how much capital are you willing to risk on their decision?  If they avert a shutdown, the market could be higher on Monday but should they fail it could easily be sharply lower.  A pretty big risk for hard earned capital.

As for me, I choose not to gamble on a political decision.  I will exercise my discipline and wait patiently for my edge to return and price action proof before risking more capital.  If by chance an agreement is made before the market close today, I will reevaluate and make decisions based on the price action, not speculation or prediction.  Until then I will protect my capital and rest well this weekend avoiding this ridiculous political uncertainty.

On the Calendar

On the Earnings Calendar, we have only 14 companies reporting today with KMX as the most notable.

Action Plan

Although the market seems currently oversold futures are pointing to more selling this morning.  Asian closed sharply lower and European markets are also under pressure this morning.  The border wall budget battle seems like it’s rapidly headed for a government shut down.  The President says he will sign the House version on of the continuing resolution, but the Senate says no deal.  Sadly this could be a very rough day of price action unless someone backs down and a government closure is averted.

We could bounce at any time yet at the same time the political uncertainty could easily drive the market substantially lower.  That makes for some very tough decisions regarding the risks of holding through the weekend.  I want to believe that cooler heads will prevail and a last minute deal will finally provide some relief to the selling, but I trade on price action proof, not hope and speculation.  An old saying comes to mind, “The market can stay irrational much longer than I can say liquid.”  Consequently, I choose to protect my capital until price action improves.  I wish you all a wonderful weekend!

Trade Wisely,

Doug

With a December rate increase and the two more expected next year, Jerome Powell is officially The Grinch who Stole Christmas.  Another wild day of price action with the Dow swinging nearly 900 points for the high to low.  Futures during the night were also very volatile falling an additional 200 points before bouncing and now suggesting a modestly higher open today.  Sadly with such wild price action, we can’t rule out the possibility that sometime during the day a test of the overnight low.

In the very short-term,we appear to be in an oversold condition, and a relief rally of sorts could begin at any time.  Unfortunately, with so much technical damage, extreme volatility and the holiday’s just around the corner any reaction higher could bring in more risk off sellers.  Keep in mind as the holiday’s draw near volumes are likely to decline as traders take time off to celebrate.

On the Calendar

On the Earnings Calendar, we have 34 companies reporting earnings.  Noteworthy Earnings Reports: CAN, BB, CAG, NKE, WBA

Action Plan

The Good: Indexes bounced slightly before the close at lower support levels. The VIX suggests fear is high but surprisingly held at price resistance.  T2122 indicates we are in the bounce zone and futures are suggesting a modestly higher open.  Last but not least Jerome Powell expects a strong economy in 2019.

The Bad: The indexes broke major support levels dropping sharply and quickly to test lower levels.  All four indexes have now entered the death cross with the DIA yesterday joining the other three adding to the technical damage.

The Ugly: With nearly a 900 point swing from high to low yesterday volatility remains very high.  With that in mind, we should not rule out the possibility of testing the overnight futures lows at some point during the day which is more than 200 points lower.  It looks like Congress is kicking the can down the road to February before making a decision on the budget which means the political uncertainty is likely to continue to plague the markets into next year.

As we head into the weekend, consider the risk carefully and know that anything is possible.

Trade Wisely,

Doug

The question of the day, What will the FOMC decide at 2:00 PM ET time today?  The world is watching, and pressure continues to mount as the WSJ the president and even Cramer have chimed in that the Fed should not raise rates.  However,the Fed Funds Futures suggest that there is better than a 70% chance that the FOMC will stick to its plans increasing the rate by 25 basis points.  Then there is the question of the FOMC forecast? Will  they continue with their aggressively hawkish stance or will they soften their outlook with a more dovish look forward.

As a trader, the truth is it really doesn’t matter what the Fed does or doesn’t do.  What matters is how the market responds to their decision and how we as traders react the price action. Currently, the Dow Futures indicate a substantial gap up of nearly 200 points.  We should expect substantial volatility and watch for possible full whipsaw reveals as we wait for the FOMC decision.  After the decision expect tremendously violent price swings, the market reacts all the way through the Chairman’s press conference.  Buckle up it could be a very bumpy ride!

On the Calendar

On the Earnings Calendar,we have 23 companies reporting earning stoday.  Among those reporting are GIS, PAYX, PIR, RAD, WGO as some of the most notable.

Action Plan

A budget deal in Italy,  some improvement in US budget negotiations and a possibly more accommodating FOMC is lifting the mood of US Futures this morning.  As I write this futures are suggesting a triple point gap up at the open.  The question is will the Bull be able to hold and defend the gap as we wait for the FOMC decision at 2:00 PM ET or will we continue whipsaw?  We should expect a volatile day and if you decide to trade plan to be very nimble and a substantial tolerance to risk.

Fed fund futures indicate better than a 70% chance that the FOMC will follow-through on their plans to raise interest rates by 25 basis points. If they do, does mean the market will necessarily fall?  No.  However, it will require to Fed to sound much more dovish in their forecast.  With the current state of the market, there is, of course, tremendous anticipation surrounding this event.  Expect extreme price volatility after the release the may reverse directions several times all the way through the chairman’s press conference.

Trade wisely,

Doug

A morning gap down that whipsawed into the green only to be whipsawed once again to new lows is quickly approaching critical weekly index supports.  If they fail to hold this selloff could get much worse very quickly.  All eyes are on the FOMC and Jerome Powell,wondering if they will stick to their aggressive rate increase stance or if recent events will make them reconsider.  If they raise, I suspect the weekly lows will fail.  Should they begin to talk more dovish, the market could substantially rally. 

Are you willing to gamble on that decision or will you stand aside to protect your capital?  Every day I hear from struggling traders searching for answers as they watch their accounts chopped to pieces and suffering huge losses trying to trade the extreme volatility.  If you find yourself consistently losing money then stop trading!  You’re the boss so make the decision to protect your capital and wait for the market to stabilize.  Cash is a position!  Better days will eventually return, but if you lose all your capital trying to fight the market, you won’t be here to take advantage of it. 

On the Calendar

On the Earnings Calendar, we have 23 companies reporting today.  Notable today is FDX, MU, DRI, FDS, JBL, SCS reports.

Action Plan

In yesterdays note I suggested the possibility of a bounce. After the morning gap and some follow-through selling, we did get a bounce.  Unfortunately,it lasted for only a couple of hours recovering the morning losses then failing at Friday’s resistance lows creating a double intraday whipsaw.  When you look at the index charts its tough to anything but gloom with the financial and political news reinforcing that sentiment.   Fear of the unknown is a powerful tool of the bears that have chased away any notion of a Santa rally this year.

As we rapidly approach weekly index supports the market is trying to send a strong signal to the FOMC and Jerome Powell to take a less aggressive approach to interest rate increases.  Although it’s not the job of the FOMC to protect the market, they certainly played a part in this selloff.  They have signaled a December rate increase is likely, but hopefully, they have received the message of the market and will reconsider. After that, we have the possible closure of the Federal government on Saturday if the Congress and President can’t agree on a budget.  Be very careful and remember that cash is a position!

Trade Wisely,

Doug

The market hates uncertainty and we this week we have an extra dose of political uncertainty to weigh on the mind of the market.  While we watch and wait for new on China/US Trade negotiations, we have the FOMC rate decision and forecasts on Wednesday and the obvious tension that it creates as the market waits for the decision.  If that’s not enough drama, we face the possibility of a government shut down on Friday if Congress and the Whitehouse can’t agree on the budget.  The hanging point is the border wall so expect an none stop barrage of political spin for the market to chew on this week.

As I write this, the US Futures are pointing to a modest gap down at the open.  It seems likely that the indexes will test lower supports but don’t rule out the possibility of a short-term oversold bounce to test the overnight futures highs.  Although volatility remains high, there is a possibility of light and choppy price action as the market tests support levels and waits for the FOMC decision.  As always maintain your discipline and say focused on price action an remember the next reversal may be just one news report away as the political uncertainty continues.

On the Calendar

We have 28 companies stepping up to report earnings this morning.  Make sure to keep up your due diligence as 2018 reports continue to wind down.

Action Plan

The Friday selling was disappointing but not all that shocking considering the political uncertainty that continues to swirl.  On Wednesday, the market faces the question,will they are will they not decide to increase interest rates as originally expected?  And then what do they see in the interest rate future with their FOMC Forecasts?  If that’s not enough drama then keep in mind, the government could shut down on Friday unless the Congress and President agree on a new budget let alone the ongoing trade negotiations.

During the evening Futures were at one point slightly higher as the Asian indexes closed mixed but mostly higher.  Unfortunately, European markets are all modestly lower this morning, and the US Futures are currently looking fora modestly lower open this morning,  A test of lower supports seems very likely but don’t rule out the possibility of a bounce with T2122 indicating a short-term oversold condition.  As the FOMC decision approaches to keep in mind that trading could become light and choppy as the market waits for the decision.  As always stay disciplined and focused on price action.

Trade Wisely,

Doug

A gap up and run of more than 450 points and a 3-hour selloff taking back nearly 300 before the close is a test of traders patience and discipline.  Yesterday was the 5^th huge daily whipsaw in as many days as the wild news driven volatility continues.  This is a market for very fast and very skilled day traders and institutional algorithmic computers.  So what is swing trader or position trader to do?

As hard as it may be, we must be patient and remain disciplined to our rules to protect capital and wait for our edge to return.   Waiting is painful for most traders, but it’s far less painful than watching your money and confidence disappear trying to fight the tape. Obviously, this is very dangerous price action and if you find yourself losing money consistently for goodness sake stop repeating the same mistake expecting a different result.  Like the old saying goes, If you find yourself in a hole, Stop Digging!

On the Calendar

On the Earnings Calendar, we have 29 companies on the reporting today with ADBE as one of the most notable after the bell.

Action Plan

As I write the US Futures are fluctuating between a slightly bullish open to a slightly bearish open but with Jobless Claims and Import/Export numbers out at 8:30 AM anything is possible by the open. Honestly, I was a little surprise because only 6 hours before futures were up 110 points!  Let’s hope it can retest the overnight high later today. We can’t seem to get past the big price swings even in the overnight session following a roller-coaster ride yesterday which saw a rally of more than 400 points but gave back nearly 300 in the last 3 hours of trading.

With such wild volatility,we remain a very challenging day traders market, and we sit on the edge of our seat waiting for the next news driven reversal to occur at any moment.  We all know better days will eventually return but the patience to wait for them is very difficult.  Protect your capital and guard your confidence because both can easily evaporate during such volatility.  Trading is a marathon, not a sprint so slow down and wait for your edge.

Trade Wisely,

Doug