A Big Whipsaw
Yesterday’s price action was just downright mean and nasty serving up a big whipsaw. It’s also provided a painful lesson that trying to pick a bottom often has severe consequences for swing and position traders. The fear is missing out is a very powerful emotion that causes a lot of damage to trading accounts and crushes a traders confidence. Morning gaps are the perfect scenario for creating a fear of missing out.
To avoid this in the future, a trader needs a good set of rules and the discipline to follow them. It’s the discipline that key here and much harder to master than simply writing some rules. First, avoid chasing morning gaps especially when they are opposite the overall trend. They are the perfect breeding ground for a whipsaw to occur. Wait for a trend to break and then watch for proof off follow-through price action in supporting the breakout before considering an entry. Sure you might miss a quick rally from time to time, but you also break the nasty and embarrassing habit of bottom picking.
On the Calendar
A full calendar day this Thursday but only two potential market-moving reports at 8:30 AM Eastern. GDP gets the ball rolling coming in at 2.2 percent annualized rate with Consumer sending unchanged at 1.0 percent according to consensus. The GDP price index is also expected to remain flat at 1.9 percent. Next is the Weekly Jobless Claims that are expected to continue to show strong labor demand with a reading of 220,000. Corporate Profits @ 8:30, Consumer Comfort @ 9:45, Nat. Gas Report @ 10:30, one Fed Speaker @ 10:45, Kansas City Mfg. Index @ 11:00, 4 Bound events, Farm Prices @ 3:00 PM, Fed Balance Sheet & Mondy Supply @ 4:30 PM to wrap up the day.
We have 18 companies on the Earnings Calendar today with the most notable coming in after the bell with NKE and KBR reporting.
Action Plan
With the news that the Trump tech restrictions would not be a severe as anticipated Futures staged a sharp rally just before the market open. The sudden bullishness translated into the Dow rallying nearly 200 points in the morning session. Unfortunately, the Bulls were unable to hold the gains, and the indexes suffered a nasty whipsaw creating new daily lows in all four major indexes. Traders that rushed in on the news trying to pick the bottom got punished for doing and harshly reminded that bottom picking has a costly consequence.
Currently, Futures are pointing to a modestly bullish open, but I will continue to recommend caution for any long trades until the Bulls can break the downtrends and hold them as support. If you’re already short watch for clues to take some profits but for goodness sake, don’t chase short positions this late in the move. Keep in mind the weekend is fast approaching and as political uncertainty continues to weigh heavily on the market consider how much risk your willing to carry into next week.
Trade Wisely,
Doug
Pressure to Trade.
Sitting in front of your computer running scans and flipping through charts it’s easy to feel under pressure to trade. As we sift through charts in a mad dash to find a trade we often fail to remember the condition of the overall market. Currently, the market is under pressure and is in a short-term downtrend. None of the major indexes produce a buy signal yesterday, and in fact, they all remained within their downtrends, and nothing changed the cloud of uncertainty that’s weighing on the market.
Patience and discipline are key qualities that all traders must possess. As your looking for trade-able charts, make sure you are assessing the overall market condition. Do you have an edge or are you a giving up your edge by forcing trades when the market is not favorable for your positions? Remember trading is a marathon, not a sprint.
On the Calendar
The Wednesday Economic Calendar gets going with market-moving reports at 8:30 AM Eastern with Durable Goods Orders. Consensus expects growth in with core capital goods orders increasing a modest 0.2 percent gain with ex-transportation numbers coming in up 0.5% in May. Also at 8:30 AM is International Trade in Goods where forecasters expect the deficit to widen to 68. Billion in May vs. the 67.3 billion reading in March. Pending Home Sales at 10:00 AM expect an increase of 0.6 percent in May but remaining overall flat for the year. Then at 10:30 AM the last market-morning report of the day comes from the un-forecast EIA Petroleum Status Index. Other than that we have Retail inventories & Wholesale Inventories @ 8:30 AM, two Fed Speakers at 11:00 AM & 12:15 PM and two Bond Auctions.
We have 20 companies on the Earnings Calendar today expected to report results. Among those reporting PAYX, MON, GIS report before the bell while RAD, PIR, and BBBY report after the close.
Action Plan
With the modest bounce in the indexes, it was tempting to forget about trade war tensions and want to buy into the dip. I continued to repeat the need for caution and as for myself added no new positions. Sadly that appears to have been the right decision with the Dow Futures pointing to another gap down of more than 100 points at the open. With a busy Economic Calendar and a few Earnings reports before the bell that could certainly improve or get worse before the open.
I will need to see more conviction from the Bulls to enter new long trades, and I will matain stick to my rules and resist chasing into short trades that have already made significant moves lower. Trading is a marathon, not a sprint and you don’t have to trade every day to be successful as a trader. Avoid anticipating or predicting bottoms and wait until price action confirms good entries. Remember cash is a position and in times of market uncertainty, it may be the best position especially if you’re an inexperienced trader.
Trade Wisely,
Doug
An Ugly Day
Yesterday was clearly an ugly day for the market with many stocks suffering there biggest selloff this year. At the end of the day, even the strongest of the indexes suffered technical damage that will likely take weeks if not months to repair. With trade tensions still growing we can’t rule out additional shock waves occurring so trade with caution and discipline.
Although an ugly day there was a silver lining in a few sectors as traders rotate toward safety. Consumer defensive, consumer staples, utilities and high dividend paying stocks are showing some positive signs, but you will have to choose carefully. Domestic companies with less exposure to tariffs vs. international companies that could experience more shock waves as trade tensions continue to grow.
On the Calendar
There are two potential market-moving reports on Tuesday’s Economic Calendar. The first is the Case-Shiller at 9:00 AM Eastern which consensus expects a gain of 0.5 percent with the year-on-year number holding 6.8 percent. Secondly, the 10:00 AM Consumer Confidence expects a steady strength of 128.1 in May according to consensus. Events not expected to move the market included Redbook @ 8:55 AM, Richmond Fed Mfg. Index & State Street Investor Confidence @ 10:00 AM, two Bond Auctions & two Fed Speakers.
The Earnings Calendar shows 13 companies reporting results today with FDS and LEN before the bell. After the bell, we will hear from JMBA and SONC.
Action Plan
After a rough day selling with all four major indexes suffering technical damage, caution an restraint should be considered. You might be thinking now is the time to jump in and pick up some deals and you might be right. However, don’t anticipate a wait for good signals of buyers stepping in before rushing into trades. Yesterday could have been an overreaction by the market, but keep in mind the uncertainty surrounding trade is far from over and the next shock wave may only be a news report away. Having broken uptrends any rally back up should be watched closely for the possibility of failure at or near price resistance levels.
There seems to be a rotation to the defensive sector, consumer staples sector, and high dividend paying stocks such as utilities as investors look for a little safety. Also, keep an eye on domestic companies as they may be less impacted by tariffs. Currently, the Dow futures are pointing to a flat to slightly bearish open. A resting day with choppy price action would not be out of the question. Better days will eventually return, but there could be a lot of very challenging days yet to come. Third quarter earnings are just 2 or 3 weeks away, but until then its likely trade war jitters will continue to be the driving force of the market.
Trade Wisely,
Doug
Trade Policy Uncertainty
Facing another significant overnight gap down due to trade policy uncertainty its time to ask yourself a question. Do you feel like your trading the market or fighting the market? Daily triple-digit Dow gaps have significantly increased trading risks for most swing and position traders. When good entry signals continue to reverse back and forth overnight depending on the threat, tweet or news report the swing trader has little to no edge.
Sure you can pridefully continue to fight but at what cost? How much are your willing to risk trying to be right? As the trade policy uncertainty continues big gaps, reversals and whipsaws will also likely continue. If you feel like, you’re going into battle blindfolded without a weapon day after day; who’s fault is it when your capital disappears? There will be better days ahead if you have the patience and discipline to wait for them.
On the Calendar
A busy week on the Economic Calendar gets going with the first market-moving report at 10:00 AM Eastern with New Home Sales. New Home Sales according to consensus will continue its strong uptrend in sales with a slight increase to a 665,000 annualized rate. We have Chicago Fed Activity Index @ 8:30 AM, the Dallas Fed Mfg. Survey and three bond events on the calendar today but they are unlikely to move the overall market.
We have only 12 companies reporting earnings today with CCL as one of the most noteworthy coming before the bell.
Action Plan
It was nice to see a little relief from the selling with the gap up open on Friday, but sadly the Bulls had no energy to follow-through after the gap. With the threat of new trade war measures, the Futures are once again pointing to another triple point Dow gap down. Currently, that gap could be as much as of 200 giving up all of Friday’s gains in one fell swoop. The SPY and the QQQ look as if they could also give up important support levels at the open today.
The fact remains that while the US and China continue to battle trade policy publicly, the market will continue to react erratically. Every trader has a decision to make. Do I continue to put capital at risk knowing that significant overnight gaps are likely to continue or do I stand aside waiting for the uncertainty to pass? Standing aside is a hard thing to do for most traders but if you find that losses are mounting trying to fight the market will only make the situation worse. I started cutting back on my trading last week and will continue to do so until price action improves.
Trade Wisely,
Doug
Little to no fear.
As the weekend approaches with still unresolved trade war jitters, the VIX continues to indicate little to no fear of the swirling uncertainty. New record highs in two indexes while the Dow looks to open below its 50-day average this morning adds additional complexity to the is already challenging the market. With the market capable of taking a quick turn south as it did on Tuesday, I have wonder if the market is becoming weary of all the political noise and perhaps becoming somewhat complacent.
Consider your overall risk as we move toward the weekend and remember big gaps are possible in both directions. I know I run the risk of missing out on a big rally if there happens to be a resolution to trade negotiations over the weekend but I will also be able to sleep better if I reduce my exposure to risk ahead of the weekend. I’m not saying I’m right, but for now, that’s the plan I’m sticking to it.
On the Calendar
We kick off the Thursday Economic Calendar today with the weekly Jobless Claims at 8:30 AM Eastern. Consensus expects claims to tick higher to 220,000 but still near historic lows as strong labor demand continues. Also at 8:30 the Philly Fed Business Outlook Survey expects a decline to 28.0 vs. the 45-year high in new orders on the May report of 34.4. We have a Fed Speaker & FHFA House Price index @ 9:00, Consumer Confort Index @ 9:45, Nat. Gas Report @ 10:00, 7-Bond Events at 11:00, Fed Balance Sheet & Money Supply @ 4:30 none of which are expected to move the market.
On the Earnings Calendar, we have 19 companies fessing up to their quarterly results today. Among them are KR and DRI before the bell with RHT reporting after the close today.
Action Plan
The pop and drop in the DIA yesterday left index teetering on its 50-day moving average while the QQQ and IWM reached out for new record highs. The SPY closed just slightly positive holding onto a sliver of the morning gap at the close of trading. Unfortunately, the Futures turned south during the evening and currently suggest the Dow will gap down at the open below its 50-day average as trade war jitters continue to weigh on international companies. While the Dow declines, it’s interesting to note that the VIX is fell back below a 13 handle yesterday as fear seems to remain in check.
As the weekend approaches and trade tensions continue, I will become more and more cautious about adding additional risk and will more inclined to reduce risk. With big daily gaps possible and an uncertain weekend of tariff threats I know I will sleep better and enjoy my weekend more if my capital is safely resting in the account. It’s true I could miss out on a surprise market rally but entering a little late is always easier than getting out when it’s too late.
Trade Wisely,
Doug
Triple Point Gap
Another day, another triple point gap in the Dow as the markets try to come to grips with all the political uncertainty. Having gaped down three days in a row and rallying each day off the lows has likely punished any traders the chased into short trades. Today’s triple point gap up will certainly add insult to injury for those that stubbornly held on to those short positions.
With the market gaping higher this morning there will most certainly be traders that chase the gap up this morning by rushing into long positions. Could they be just as wrong and equally punished at those that chased short? The answer is obviously, Yes. Chasing is a sign of an undisciplined trader trading emotionally. It’s a bad habit that with cost you a lot of time and money. I know because that was once me and it took a lot of hard work with the help of a trading coach to break me of this habit. The solution, a good trading plan with rules that protected me from me and learning the discipline to follow them. Don’t have a plan? Stop trading until you do. Get some help and put your trading on a solid foundation.
On the Calendar
On the Economic Calendar, we have two potential market-moving reports today. First, Existing Home Sales at 10:00 AM Eastern expect a bounce back in May to and annualized rate of 5.500 vs. 5.460 million in April. Secondly, at 10:30 AM we get the latest reading on national oil supplies in the EIA Petroleum Status Report. Other than that we have a group of Fed Speakers at 9:30 AM and a couple of reports, Current Account and Mortgage applications, none of which are expected to move the market.
On the Earnings Calendar, we have 19 companies reporting with MU being one of the most notable after the bell.
Action Plan
Three days in a row the market has gapped due to trade war fears yet each day the Bull have fought back rallying of the morning lows. The Dow has taken the brunt of the selling and yesterday dipped below its 50-day average but managed to rally just enough to close back this important support level. The SPY although closing lower on the day held support as the Bulls stepped up to defend the index lifting it well of the morning lows. The QQQ briefly dipped below price support but came back nicely, and the IWM rallied to print a new record hi
Politically charged price action has been a challenge the last few trading days, and I would expect that to continue until we finally get some resolution on trade disputes. This morning Dow Futures are looking higher and once again expected to gap more than 100 points sharing the pain with those that happened to chase into short trades. Keep in mind; it’s equally wrong to chase long trades on a gap up open with so much uncertainty swirling around. To reduce potential volatility look to stock holding solid trends that are primarily domestic companies as they are less affected in a trade war escalation.
Trade Wisley,
Doug
More Uncertainty
We wake this morning to more uncertainty with new threats and a possible escalation in the so-called trade war. Markets around the world declined in response, and the US Futures are responding in kind indicating a gap down of 300 Dow points or more. Politics aside all this uncertainty is greatly elevating the level of risk for traders. I have said it before and will say it again, periods of political uncertainty creates challenging times for traders.
As long as the threatening rhetoric and tariff increases continue, we can expect unreliable action signals, fast overnight reversals, and intraday whipsaws that could challenge even the most experienced trader. I believe cooler heads will eventually prevail because elected officials always want to be reelected and the destruction of the market would not bode well for them. Until then we should plan for some nasty turbulence.
On the Calendar
The Tuesday Economic Calendar begins the day the potential market-moving Housing Starts Report at 8:30 AM Eastern. Forecasters expect a surge in housing starts to 1.320 million annualized-up from 1.287 million in April’s reading. Permits are also remaining strong with a 1.350 million expectation vs. Aprils 1.352 million. Year-on-year starts are up 10.5 percent with permits up 7.7 percent. After that, we have the Redbook at 8:55 AM and two bond auctions at 11:30 which are not expected to move the market.
On the Earnings Calendar, we have only 14 companies reporting today the most notable coming after the bell with reports from FDX and ORCL.
Action Plan
Yesterday saw a nasty gap down in the market in reaction to the trade war threats being launched back and forth between the US and China. However, the Bulls managed to find the energy to rally closing most of the gap by the close of the day with Dow down only 0.40%. The IWM reached out to new record highs for the index with both the QQQ and SPY closing only marginally lower. Seeing the Bulls fighting back with such vigor had me hopefull they have a chance to follow-through higher today, but once again political uncertainty raised it’s ugly head overnight.
New threats from the White House of sent the Asian markets sharply lower and the US futures have followed suit. Currently, Dow Futures are pointing to a gap down of 300 points as trade war jitters escalate. The economy is strong, but unfortunately, traders face a very uncertain market with our leaders unable to play nice with each other. Let’s hope cooler heads will prevail soon. Until then trade with caution because each day could bring another big overnight reversal.
Trade Wisely,
Doug
Patience is a virtue.
We have all heard the axiom that patience is a virtue. With 13 years experience as a full-time trader, I can confidently confirm that patience is a key quality for all traders to develop. Currently, we see the DIA and SPY pulling back with the futures pointing to significant gap down open this morning. There will be bullish traders that will try and anticipate or predict the turning point. There will also be traders that only see bearishness in the market and will chase short positions on the gap down. Both actions demonstrate a lack of patience.
Good traders with high win/loss ratios share some similarities to a good sniper. They will wait patiently, quietly and unemotionally focused on the right time to act. If you’re bullish, wait for the bullish signal when buyers step back in at or near price support. If you’re bearish, wait for the signal of failure at or near price resistance. Be patient, focus on price and wait for that good signal to pull the trigger. If to rush or anticipate your shot you’re very likely to miss your target and have an undesirable effect on your account.
On the Calendar
The Monday Economic Calendar gets going at 10:00 AM Eastern with the Housing Market Index. Consensus expects the housing index to remain steady and strong with an unchanged reading at 70 in June. We then have three bond events and two Fed Speakers at 1:00 PM and 4:00 PM to close the calendar day.
On the Earnings Calendar, there are only nine companies expected to report results today, none of which are market moving.
Action Plan
After gaping down Friday morning, the Bulls stepped back in lifting the Dow and the SPY off the morning low and finishing the day with hammer patterns. The QQQ traded sideways and the IWM finished the day at a new record high close. Unfortunately, it currently looks unlikely the hammer patterns will get the follow-through higher to confirm this morning with the Dow futures pointing to more than a 150 point gap down. Of course, it could be a very different picture at the end of the day if the Bulls dig in and fight back but political uncertainty seem to have given the Bears the upper hand at least for the short-term.
The good news is that the overall market uptrend is still valid, but there is reason to exercise a little caution. If the Bulls step up defending the trend, this pullback could produce nice low-risk entry points, but I would caution you not to anticipate entries. I would also be cautious about chasing short positions with uptrends still intact especially after a gap down open. There is no rush. Stay focused on price action and wait for a signal before jumping in.
Trade Wisely.
Doug
New Tariffs
With new tariffs likely to be levied by the US, China, and Europe it seems that the Bear’s are ready to go back to work this morning. Currently, the Dow futures are pointing to more than a 100 point gap down at the open. With the QQQ and the IWM closing at new record highs yesterday its easy for the trader to feel a bit cheated with an overnight change in attitude like this. We all hate the feeling of helplessness and being out of control.
The best way to deal with that is always to be taking profits. It’s normal to want the maximum profit possible out of every trade, but that is allowing greed to get in the way of good decision making. If you’re walking down the street and a hundred dollar bill blows across the sidewalk in front of you, most will stop and pick it up. Right? Why don’t we do that in trading? Taking partial profits along the way puts you in control and makes overnight reversals much easier to handle.
On the Calendar
The Economic Calendar kicks off at 8:30 AM Eastern with the Empire State Mfg. Survey. Consensus suggests a reading of 19.1 in June vs. Mays’s 20.1 reading with new orders remaining strong. The 9:15 AM Industrial Production expects an increase of 0.1 percent and capacity utilization should hold steady at 79.0 percent according to forecasters. At 10:00 AM Consumer Sentiment expects an increase to 98.5 in June vs. the already strong May reading of 98.0. Wrapping up the potential market-moving reports for the week is reading on Treasury International Capital 4:00 PM which tracks financial instruments in and out of the US. There is the Baker-Hughes Rig Count at 1:00 PM and a Fed Speaker at 1:30 PM but are not expected to move the market.
On the Earnings Calendar, we have a very light day with only nine companies reporting.
Action Plan
Yesterday was a day of missed signals with the QQQ’s and IWM closing at new record highs while the DIA found more sellers than buyers and the SPY chopped in consolidation. Overall with up trends holding there was the reason for caution, but the Bulls maintained their dominance. Ths morning however with the news that the President is likely to levy tariffs against China today futures are pointing to a sharply lower open with the Dow gapping down triple digits. Of course, China has promised immediate retaliation with its own set of tariffs as the so-called trade war heats up.
As always I will be more focused on protecting profits than adding new risk ahead of the weekend. I wish you all a fantastic weekend.
Trade Wisely,
Doug
Is the sky falling?
Is the sky falling with more interest rate increases forecast by the Fed? We certainly saw some selling yesterday after the news, but I have to say it seemed quite controlled with the Bulls holding up better than one might have expected. The candle patterns left behind certainly warrant some caution but unless there is follow-through selling the daily bearish patterns will not valid. So as for now, the sky is not falling, and in fact, with current futures pointing to a flat to a marginally higher, there is a chance the Bulls might maintain control.
Although the Bulls held up quite well, it would be wise to exercise a little caution staying focused on price again for clues. Guard yourself against predicting or becoming biased and simply follow price action or you might miss the next big potential to profit up or down.
On the Calendar
The Thursday Economic Calendar has four potential market-moving reports. The first is the Weekly Jobless Claims at 8:30 AM Eastern which expects strong labor demand to continue with a reading of 222,000. The second 8:30 report is Retail Sales which according to consensus will show consumer strength with a gain of 0.4 percent in May. The last 8:30 report is Import/Export Prices with Import prices rising 0.5% and Export prices up a more moderate 0.3 percent. The last potential market-moving report comes at 10:00 AM with Business Inventories rising 0.3 percent in for April according to forecasters, but it’s important to note that underlying sales are growing at a faster rate. We have Consumer Comfort @ 9.45, Natural Gas @ 10:30, Fed Balance Sheet & Money Supply @ 4:30 as well as four bond events to round out the day.
On the Earnings Calendar, FRED will report before the bell with ADBE taking center stage after the close which is among the 31 companies reporting results today.
Action Plan
As expected, the Fed raised the interest rate by a quarter point but sent the market lower after forecasting two more rate increases this year followed by another two next year. Although there was some selling after the news, it was rather controlled but signaled a pullback or consolidation of recent gains has possibly begun. Bearish Engulfing patterns were printed in the DIA, SPY, and IWM while the QQQ left behind a possible shooting star pattern. Keep in mind these patterns require follow-through to be valid and with the current futures pointing to a flat to slightly bullish open validation could possibly not occur.
Current positions held up quite well yesterday however if we do see follow-through selling today it may be wise to capture gains and wait for new entry signals. We all knew a pullback was possible and considering the Fed news I have to say at this point the Bulls held up quite well and bodes well for the current uptrend.
Trade Wisely,
Doug
Yesterday’s price action was just downright mean and nasty serving up a big whipsaw. It’s also provided a painful lesson that trying to pick a bottom often has severe consequences for swing and position traders. The fear is missing out is a very powerful emotion that causes a lot of damage to trading accounts and crushes a traders confidence. Morning gaps are the perfect scenario for creating a fear of missing out.
