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
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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
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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
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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
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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
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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
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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.
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Predictions
Over the weekend there seemed to be a flurry of traders posting predictions of the week ahead. They ranged from the extremely bullish to those shouting the sky is about to fall. As short-term swing traders, what you think will happen is far less important than how you react to what is happening! Predicting can create a bias that clouds the view of price action signals that leads to all kinds of trading mistakes.
Have you ever missed a fantastic trade because you were sure the market would tank or lost a bucket full of money because you were sure you had a no lose position? That’s the result of predicting and trading your bias while ignoring the clues the market was presenting. Fight the market, and you will lose. Listen to the market, learn to follow it’s lead and trading becomes much easier.
On the Calendar
We begin the last week of September with a busy week on the Economic Calendar. However, today there are no expected market-moving reports. At 8:30 AM Eastern is the Chicago Fed National Activity Index report and then the Dallas Fed Mfg Survey @ 10:00 AM. We have 4-Bond events between 11:00 AM and 1:00 PM to wrap up the calendar day.
Today on the Earnings Calendar we have 16 companies reporting, but there are none particularly notable with almost all of the classified as penny stocks.
Action Plan
After very strong rallies in the DIA and SPY, last week momentum certainly favors the Bulls. Trends are bullish, and all the major indexes are above key supports. However, having moved up so far so fast, a rest or even a profit-taking pullback is not out of the question. Toss in a heavy Economic Calendar week topped by the FOMC meeting announcement at 2:00 PM Wednesday and the potential for the end of quarter window dressing to occur and we could face a challenging week ahead.
Asian markets closed mixed but mostly higher with the new 10% tariffs on 200 billion in Chinese imports kicking in today. European markets are currently in the red across the board. US Futures are pointing to a modestly lower open this morning, but the gap down in the QQQ is the most concerning. Leaving behind a bearish engulfing candle on Friday and falling below a key price support this morning should be closely watched. If bears take it below 180, it could easily trigger some fear in the market so keep a close on the price action.
Trade Wisely,
Doug
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New all-time highs
Fortune favored the bold this week with the Dow surging over 575 in three days to set new all-time highs for the index. Not wanting to be left behind the SP-500 joined in on the bull run also closing at a new record high. Clearly, the bulls are in control, but I am just a little concerned that exuberance may have temporally over extended prices in the short-term, particularly in the Dow. As a result, I was a net profit taker yesterday and will likely continue to do so today reducing my risk into the weekend.
Please don’t misunderstand I am not bearish, and currently, there are no signals in the market to suggest bearishness! I am simply following my rules of taking-profits into strength and doing my job as a trader; making money! Remember today is Quadruple Witching day which can result in increased volatility and very choppy price action. Also as you plan your risk into next week keep in mind w have an upcoming FOMC meeting and a possible interest rate increase for the market to deal with.
On the Calendar
A very light day on the Friday Economic Calendar with only two reports neither expected to move the market. The PMI Composite FLASH comes out at 9:45 AM Eastern followed by the Baker-Hughes Rig Count at 1:00 PM.
Only two Earnings Reports today, both happen after the close today. They are ELLO and NTZ which are very insignificant reports.
Action Plan
The Bulls showed tremendous energy yesterday gaping up, holding the gap and then continuing higher the rest of the day in both the Dow and the SP-500. The Dow closed up 251 points on the day and more than 577 points in just 3-days to set a new all-time high. The SP-500 also closed at a new record high while the NASDAQ challenged the price resistance of last week. Overnight Asian market all closed higher and European markets are currently very bullish across the board.
As I write this, the Futures are pointing to a flat to modestly bullish open, but you may notice that the SPY is indicated to open lower due to dividend payments. Today is a Quadruple Witching day which means market index futures, index options, stock options, and stock futures all expire today which usually results in increased volatility.
With very little economic news and earnings reports to drive the market, we could see an exceptionally choppy day. I used the rally yesterday to take several profits and will very likely do more profit-taking today to reduce my risk heading into the weekend. As you plan ahead, remember that the FOMC begins next week and interest rates are likely to rise. Have an awesome weekend everyone.
Trade Wisely,
Doug
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Dow near record highs
Historically September is a down month according to the Traders Almanac, but it would appear the bulls didn’t receive that memo with the Dow near record highs. In fact, the bulls only need to gain 1% to breakout to new highs in the Dow and with the futures suggesting a gap up open the SP-500 is poised to set a new record at the open today. The QQQ and the IWM are lagging behind that’s not likely to deter the bulls from getting that bullish headline accomplished.
Keep in mind that the Dow has rallied just over 320 points in just 2-days. Chasing this move now so close to highs would we unwise because profit-taking could begin at any time as we move toward the weekend. Also, keep in mind that the FOMC meeting begins next week and the odds of an interest increase are very high so plan accordingly. Fast price action, head fakes, whipsaws, and reversals tend to be prevalent at new market highs so stay on your toes and focused on price.
On the Calendar
A busy day on Thursday’s Economic Calendar begins with two market-moving at 8:30 AM Eastern. First, the Weekly Jobless Claims expect the initial claims to come in at 210,000 bouncing 2K after 2-weeks at 50-year lows. Second, the Philly Fed Business Outlook Survey has consensus looking for a reading of 19.6 for September up sharply from 11.9 in August. !0:00 AM brings the Existing Home Sales report which expects a modest increase to 5.360 million annualized vs. July’s 5.340 million. Also at 10:00 AM we get the Leading Indicators report followed by the 10:30 EIA Natural Gas Report. We have 7-Bond events between 11:00 AM and 1:00 PM today and wrap up the calendar day with Fed Balance Sheet and Money Supply at 4:30 PM.
On the Earnings Calendar, we have just 11 companies reporting today with DRI and THO among those reporting before the bell. After the bell, MU and SCS are the most notable of the afternoon reports.
Action Plan
So far the market has certainly bucked the trend of weak September results with the Dow now just 1% away from new record highs and the SP-500 only 8.3 points away from all-time highs. Although the number of stocks helping to lift the market has been in steady decline, it seems unlikely that the bulls will stop just short of a new Dow breakout. Asian markets closed mixed but mostly modestly higher while European markets are currently decidedly bullish across the board. Consequently, US Futures are pointing to a gap up open.
Remember to be careful chasing a gap especially at or near new record highs. The Dow has rallied more than 320 points in just 2-days. A push to new record highs seems very likely but keep in mind profit taking at the highs is also not out of the question. As we head toward the weekend riding this big bullish wave make sure to take some profits along the way.
Trade Wisely,
Doug
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