Capitulation
Capitulation
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.
Of course, earnings are the big unknown and if we see some of the big techs disappoint the market, the bears could easily maintain control. With the VIX closing above a 25 handle, any major disappointment in earnings could evolve from fear into outright panic. Consequently, the price action will most likely be very challenging and not a place for those faint of heart. Extreme intraday whips are possible so plan your risk very carefully.
On the Calendar
We begin Wednesday with three potential market-moving reports at 8:30 AM Eastern. First, Durable Goods Orders expects September to decline by 1.5 percent after surging 4.4 percent in August. International Trade in Goods sees the deficit narrowing to 74.7 billion vs. 75.5 billion in August. The Weekly Jobless Claims are expected to remain near historic lows but rising slightly to 212,000 this week. After that Retail Inventories and Wholesale Inventories @ 8:30 AM, Pending Home Sales Index @ 10:00 AM, Natural Gas Report @ 10:30 AM, Kansas City Fed Manufacturing Index, and 2-Bond Announcements @ 11:00 AM, a Fed Speaker @ 12:15 PM, a Bond Auction at 1:00 PM, the Fed Balance Sheet and Money Supply at 4:30 PM, and a Fed Speaker to finally close the calendar day at 7:00 PM.
There are far too many notable companies to list this morning. We have 339 companies reporting today on the Economic Calendar including several big techs that typically move the market. Make double sure your checking current holdings for earnings.
Action Plan
Yesterday I mentioned with T2122 indicating an oversold condition that I was favoring a bounce for Wednesday. However, as the news rolled out about explosive devices sent through the mail, the market has other plans. It’s unfortunate that many traders were likely squeezed out and then saw the futures almost immediately rebound after the bell.
Looking over the internal damage, I believe we have finally reached that critical capitulation point where we will see institutional and value buyers begin to support current prices. Volatility will likely remain very high and with more than 300 companies reporting today very fast price action will make it very challenging. Keep in mind that if this is the market low at some time in the future, it is very likely to be retested. Of course, if some of the big tech names reporting disappoint today, the bears could easily push on lower. Plan your risk very carefully and the weekend approaches.
Trade Wisely,
Doug
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.
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!
