How clever are you?
The Friday was a welcome sight but was it truly a hold of price support. When the market is bearish, it’s easy to for traders to mistake a relief rally for bullishness. Please keep in mind that a one-day-rally does not reverse a downtrend. Remember to confirm a bullish candle price must follow through. Over the years I learned that lesson the hard way by jumping in thinking I was clever enough to catch the exact bottom. Although it would work every now and then, more often than not, I had my head handed to me with a big loss. Not so clever after all!
I just like you am hopeful Friday’s rally will prove to hold price supports. The operative word is “prove.” One day of bullish price action is hopeful, but it is not proof! The truly clever have the patience and discipline to wait for some proof and consequently take much less heat on their trades.
On the Calendar
W begin this week on the Economic Calendar with only one important report. At 10:00 AM Eastern the IWM non-MFG index is expected to decline a bit but still very strong at 58.8 vs. January’s 59.9. There are two reports that are not expected to move the market as well three bond actions and a Fed Speaker at 1:15 PM.
On the Earning Calendar, we have just about 60 companies fessing up quarterly results. Make sure to keep checking as the earnings season continues to drag on for what seems forever.
Action Plan
After gapping down nearly 200 in at open, the bulls found some energy to rally off the lows in all four of the major indexes. With the fear of Trade Wars heating up the futures are holding up better than I would have expected this morning. As I write this, the Dow Futures on pointing to a 50 point gap down. Not great but better than the triple point gaps of late.
Volatility is likely to remain high, but the hope of the QQQ, SPY, and IWM holding support is encouraging. If we could get a little calming of the nerves and have price action take a little rest, perhaps better trader could be just around the corner. Don’t mistake hope for bullishness. Remember we are still in a downtrend and a hold near price supports may only be temporary. Stay focused on price action, stay disciplined to your rules and plan carefully.
Trade Wisely,
Doug
Rules trump hope.
Even though the price action suggested more bearishness yesterday, I must admit I was hoping for a stalemate that would hold on to the 50-day average. Rules trump hope. Obviously, the market could care less about what we hope for and if we try to stand and fight the market will always win. For now, the market has chosen to remain in turmoil and fear is back on the rise. Stick to your trading rules they are there to protect your capital from you and your emotions. With the VIX rising price action will remain challenging with big opening gaps and violent price swings. Let the big boys fight it out and wait for your edge to return.
On the Calendar
On this first day March we again have a busy Economic Calendar day. At 8:30 AM the Jobless Claims are expected to come in at 230K as labor demand continues. Personal Income and Outlays also out at 8:30 AM this morning. The PCE price index is expected to rise 0.4% in January for a year-on-year rate of 1.7%. Consensus expects personal incomes to rise 0.3% but consumer spending is expected to pull back slightly only gaining 0.2%. 9:45 AM brings the PMI Mfg Index report is expected to come in at 55.7 in February vs. 55.5 in January. At 10:00 AM the ISM Mfg Index has a February consensus of 58.9 vs. the 59.1 January reading. Also at 10:00 AM is the Construction Spending report which consensus suggests should come in with a rise of 0.3% in January. Our new Fed Chairman Jerome Powell will speak the Senate Banking Committee at 10:00 AM and Dudley speak at 11:00 AM.
We have just over 225 companies reporting today according to the Earnings Calendar.
Action Plan
During the majority of the trading day yesterday the bulls and bears seemed equally matched, and we were chopping in a narrow range. I was hopeful we could hold in a small range and see some claiming in the market, but obviously, the bears had other plans. The last 30 minutes of the day the bears launch a full-on attack causing a failure of the 50-day average on both the SPY and the DIA. The VIX quickly rose closing just below a 20 handle as investor fear spiked. The Dow managed to hold on the psychologically important 25,000 level by just 29 points.
Unfortunately, the Dow Futures are currently suggesting a gap down of more than 100 points at the open piling onto the overall market fears. The DIA, SPY and the IWM are now technically set up for a possible retest of the February lows. Let’s hope the bulls call in some reinforcements draw a line in the sand and hold onto a higher low. Expect very fast price action today and be prepared with a plan to protect your capital.
Trade Wisely,
Doug
Adapt to the change.
Up 400 points Monday and reverse it on Tuesday is the very definition of extreme volatility in my opinion. Consequently, we must adapt to the change. I suggested that the February selloff would require weeks if not months to resolve itself before we could get back to normal activity. Traders often fail to recognize and adapt when the market suddenly changes character. We try to trade at the same level of intensity as when volatility was low, and the market was trending. Everything that had been working so well is now handing out losses and frustration. Long story short, adapt your trading to the new normal or continue to have you account chopped up and your confidence destroyed. You’re the boss; the responsibility rests with you.
On the Calendar
Wednesday is another big day on the Economic Calendar. It gets going at 8:30 AM Eastern with the latest reading on GDP which consensus suggests will decline slightly by 0.15 to 2.5% annualized. Consumer spending is expected to slip 0.1 percent to 3.7% with the GDP price index coming in at a 2.4% rate. At 9:45 is the Chicago PMI lead by a 6-year high for employment is expected to come in with a solid 65.0 reading. Pending Home Sales at 10:00 AM is expected to see a moderate gain of 0.3 percent today according to consensus. To round out the calendar for today, the EIA Petroleum Status Report at 10:30 AM is not forecast but had a nice decline in supplies bolstering oil stocks.
On the Earnings Calendar, we are expecting more than 190 reports today. I know this season seems to be dragging out forever but remain vigilant checking reporting dates and preparing a plan to deal with them professionally.
Action Plan
Yesterday I suggested preparing for the potential for a bumpy day and sadly that turned out to be correct. Our new Fed Chairman said the Economy is improving but suggested the possibility of adding one more rate increase is possible if the improvement continues. As a result, the Market reversed Monday’s nice bullish rally leaving behind some nasty looking bearish engulfing patterns. The VIX, in fact, did bounce off of the 50-day average and price support that I pointed out as possible yesterday.
A bearish engulfing suggests a lower low print is likely today however with the indexes all above the 50-day average it’s entirely possible they could soon find some support at least temporarily. Currently, futures are pointing to flat to slightly bearish open. I see that as a very good sign because we could have easily been staring at a large gap down at the open today. I’m expecting choppy price action today as the bulls and bears battle for control around the 50-day average. Remember with volatility, so high anything is possible.
Trade Wisely,
Doug
All Eyes on Jerome Powell
Today we get an introduction to our new Fed Chairman, Jerome Powell. Will he be hit the ground running hawkish on interest rates or will ease into the position with a bit more dovish approach? No matter what he says, we can expect the market to be sensitive to each of every word. With the market now showing such bullish strength even hint of dovishness could launch the market higher. Hawkish comments could easily have the reverse effect.
Couple that with a big day of earnings and a heavy economic calendar we should be prepared for an extra dose of volatility today. That means the potential for fast price action and whipsaws. Buckle up the ride could be thrilling but also very bumpy. Remember the 400 point rally from yesterday could be just as quickly reversed. Follow your rules and maintain your discipline and always remember that cash is position and that every day need not be traded to achieve success in the market.
On the Calendar
We get going at 8:30 AM Eastern on the Economic Calendar. First is the Durable Goods Orders which consensus is expecting a 2.0% decline with transportation seen up 0.3% and core capital goods orders rising 0.5%. Next is international Trade in Goods which is, of course, running in a deficit however it is expected to narrow with consensus expecting 71.3 billion vs. 72.3 billion in December. Also at 8:30 AM and 10:00 AM, our new Fed Chairman Jerome Powell will testify in Congress. The market could be very sensitive to anything he says. At 9:00 AM is the S& P CoreLogic Case-Shiller which forecasters see as rising 0.6% in December with a yearly increase seen at 6.3%. There are several other economic reports that are unlikely to move the market as well as a couple of bond events.
On the Earnings Calendar there more than 240 companies expected to report today. Stay on your toes.
Action Plan
Yesterday I mentioned to make sure and not chase but watch for the follow through bullish price action before entering anything. After the morning pop, the indexes did pause and pull back slightly before the bulls began a rip-roaring party that at one point had pushed the Dow up more than 400 points. It’s not all that surprising after a move like that the current Dow Futures are suggesting a gap down but only of about 50 points thus far. However, there is a big economic reports, a slew of earnings and our new Fed Chairman speaking that would shake this up before and after the open.
With the major indexes now solidly above the 50-day average a pullback to test it as support is not out of the question. On the other hand, if yesterday’s strong bullish attitude can continue to push us higher with little assistance from good earnings news and Jerome Powell not rushing into rate increases. It could be a very bumpy ride today with so much in the works. Remember what goes up can come down just as fast. Make sure you have an exit plan on all trades to either take profits or cut losses if a reversal does develop.
Trade Wisley.
Doug
Be careful not to chase.
Another day and yet another triple point gap indicated by to the Dow Futures. Be careful not to chase! One of the many issues I struggled with as an inexperienced trader was getting caught up in the drama of the market. I would watch all the financial news with the exaggerated headline graphics and talking heads touting their market greatness and lose all sense of discipline. Que the dramatic bumper music. I would see the futures pointing to a big gap up and jump headlong into the shark-infested waters.
After getting my fair share of shark bites and losing more capital than I care to remember if finally learned a few very painful lessons. Trading plan and trading rules are there to protect you from you. However, they only work if you learn to ignore the drama and develop the discipline to follow them. After 13 years of supporting my family as a full-time trader, I can confidently say it’s my discipline to follow my plan that has made me successful. Are you following your plan or are you allowing the drama of the market control your destiny?
On The Calendar
The last week of February begins with a busy week on the Economic Calendar. The very important New Home Sales number come out at 10:00 AM Eastern as is expected to weaken but matain its strong rising trend with at print of 600K. At 8:30 AM is the Chicago Fed National Activity Index and at 10:30 comes the Dallas Fed Mfg. Survey, but neither is expected to move the market. We round out the today’s calendar with three bond related events.
We also have another busy week on the earnings calendar as this earnings season continues to drag forever. Today there are over 12o companies expected to report earnings today. Always be prepared.
Action Plan
On Friday afternoon last week, the price action started to indicate improvement and give the appearance of holding support. The Dow managed to close above the psychological 25k level as well as hold above the 50-day average. The SPY also showed bullish strength above the 50-day average, and even the beleaguered IWM managed to close a few ticks above this important average. The QQQ continued to matain market leadership and closed Friday within striking distance of all-time resistance highs.
Unfortunately, it looks as if this gap-happy market will continue this morning as with the Dow Futures suggestion it will open about 150 points above Friday’s close. With VIX pulling back to test price support and the 50-day average be careful not to get caught of in morning drama and chasing into the gap. Keep in mind that price volatility remains high and the big intraday reversals we experienced last week are still possible. Stick to your plan and stay disciplined to your rules.
Trade Wisely,
Doug
Patience
We have all heard the phrase; Patience is a Virtue. For the swing trader patience is a difficult but very import skill that each of us must learn to master. To be successful in this business, we wait for the proper combination of patterns, price action, volume and volatility that provides us with an Edge. That sweet spot where risk is acceptable and probabilities move in our favor. Patience is also a test of endurance because the longer we wait, the harder it is to maintain the discipline of being patient.
The fact is traders just want to trade, but if we trade, without an edge, our capital is ripped from our accounts and given back to Mr. Market. I won’t speak for you, but I think I deserve my capital much more than that Mr. Market. Consequently, it’s essential that I master the skill of patience and develop endurance to wait for my Edge! Are you willing to endure the wait or will you turn your capital over to Mr. Market?
On the Calendar
It would seem this Friday on the Economic Calendar is an FOMC speaker day. At 10:15 AM Rosengren and Dudley speak with Mester at 1:30 PM and Williams ending the day at 3:40 PM. The Baker-Hughes Rig Count at 1:00 PM is the only economic report today, and it is not expected to move the market.
We also get a break on the Earnings Calendar today with only 56 companies reporting. The vast majority of the earnings reports occur before-the-bell.
Action Plan
We started the day with some bullish energy, but once again the bears mounted a counter-offensive that left all but one index seeing red. At one point during the day, the Dow was up more than 300 points but gave nearly half of it back and once again closing below that big round number 25,000. The SPY ended the day in the red, closing below the 50-day average as did the IWM. Yesterday was the 3rd attempt in as many days for the SPY and the DIA to break through the 50 but thus far been rejected. The IWM has experienced the rejection of the 50 SMA, 4-days in a row. Even the QQQ, the strongest of the four indexes could on hold on to a positive print at the close.
While all that seems pretty bearish, there is a glimmer of bullishness because all four of the indexes are at least for now holding above significant price support levels. The choppiness of the price action has made trading extremely challenging if on impossible except for the very fast intra-day traders. By in large earnings reports continue to come in positive as does most of the Economic Reports. As I write this, the Dow Futures are pointing to a gap up of more than 100 points, adding to the choppy confusion. What all this means to me as a swing trader is that I have to continue to patiently wait until the intra-day volatility subsides and a discernable edge can be defined. Long or short doesn’t matter just show me a direction. Have a great weekend.
Trade Wisely,
Doug
Volatility is High
The bulls and bears are locked in a vicious battle for control. Volatility is high, price moves are fast, and complete reversals happen in the blink of an eye. I have suggested several times that the selloff would take weeks if not months to resolve and to guard yourself against being chopped up during such times. I have continued to suggest caution and be patient. I suggested if you do trade, then trade smaller than normal positions and be prepared for fast and whippy price action. As a result, I have received some negative and very critical comments.
I am an unapologetic picky trader because I have learned the hard way that a market such as this can chop an account to pieces. I’ve been there, done that and allowed the market to take back some or all of my hard earned profits. I want to remind everyone once again that you don’t have to trade every day to be a successful trader. Protect your capital. Trust me on this that good trading will one day return. The question is will you still have the capital and the confidence to take advantage of it when it does.
On the Calendar
Thursday’s Economic Calendar gets going at 8:30 AM with the Jobless Claims report. Consensus expects claims to come in unchanged this week at 230,000. At 11:00 AM is the EIA Petroleum Status report and has no forward-looking forecast but is trending toward rising supplies. There are three Fed Speakers at 10 AM, 12:10 PM and 3:30 PM to discuss the market sensitive issue of rising interest rates. We also have several reposts that are very unlikely to move the market such as Consumer Comfort, Leading Indicators, Kansas City Fed Mfg. Index, Fed Balance Sheet and Money Supply.
On the Earnings Calendar, we have more than 250 companies reporting today.
Acton Plan
The bulls seemed to be back in charge yesterday with the Dow rising more than 300 Points after the Fed Minutes were released. However, the bears suddenly returned and in the market fell more than 450 points from its high. When the Dow has a point travel of more than 750 points over the course of the day, swing traders struggle. What seems like a good entry signal can quickly reverse and deliver a painful loss to even the best swing traders.
The SPY, DIA and the IWM are displaying the possibility of a Blue Ice Failure pattern. Adding confusion is the Futures that continue to flip back and forth delivering daily gaps and often reversing the closing direction. As I write this, the Dow Futures are pointing to small gap up, but that amounts to more than a 175 point reversal of yesterdays close. Trading during times like this will rob you of not only capital but also take your confidence. As a result, I will continue to repeat, that cash is a position and that you don’t have to trade every day to be successful.
Trade Wisely,
Doug
Healthy Price Action
The morning the bears seem to have returned with a vengeance on their mind. The Dow Futures are pointing to a substantial gap down it will likely punish those that chased into a 6-day rally at resistance. While many might see this move as a negative, I view it as a sign of healthy price action. In fact, a pullback after such a strong relief rally could be just what the doctor ordered if the bulls can defend a higher low.
I have said several times that this selloff would likely take several weeks to resolve itself. If the bull can hold a higher low or develop a level of consolidation our swing trading Edge is likely to return. However it the bears gain the upper hand watch for a retest of the February lows. I know this is a biased statement, but I think the economic data and the strong earnings results will support the bulls. However, as always I will not try and predict I will patiently watch and wait for proof in the price action that buyers have regained control.
On the Calendar
We begin this four-day trading week with a very light Economic Calendar this Tuesday. Between 11:30 AM and 1:00 PM there are 4-bond auctions which both begins and ends the economic calendar today.
On the Earnings Calendar, we have more than 160 companies reporting results. The first quarter earnings season seems to spread out forever. This year we will well into March before it draws to a close. Checking earnings against current holdings or companies, you plan to buy is a daily habit a trader should build into each day as part of your preparation.
Action Plan
Thursday and Friday left behind cautionary candle patterns in the DIA, SPY and the QQQ. The hanging man pattern and the shooting star pattern near the 50-day average on the DIA and SPY are the most concerning. A failure at or near the 50-day average would raise concerns of a possible retest of February lows. However, if the bulls can manage a hold a higher low or build a level of consolidation, it could finally calm the market volatility and bring back a swing traders edge.
Today the Dow Futures are pointing to about a 200 point gap down which will create a significant fear and once again elevate intra-day volatility. Expect some very fast price action today with the possibility of nasty whipsaw price action. The 25,000 level of the Dow is a very importing psychological level for the market. I suspect that will be an important battleground between the bulls and the bears. Be very careful not to get caught in the crossfire.
Trade Wisley,
Doug
3-day weekend.
Thus far earnings and economic data have continued to fuel the relief rally that is now six days old. Both the DIA and SPY are at key levels, and the question is will the bulls hold strong as we face a 3-day weekend. Currently, futures are pointing to a modestly positive open. A very nice change from the daily triple-digit gaps of the last couple weeks. Personally, I would like to see the market rest and consolidate, but not surprisingly the market does not care about what I want. Consequently, I need to prepare for anything and sadly that must include the possibility that the bears could re-emerge ahead of the long weekend. Plan carefully and remain focused on price action.
On the Calendar
Friday’s Economic Calendar gets started at 8:30 AM Eastern with Housing Starts and Import/Export Prices. Consensus expects January Housing starts to come in at a strong 1.232 million annualized rate with permits declining slightly to 1.300 million vs. 1.302. The consensus for Import/Export Prices expects a gain of 0.6% in import prices and 0.3% for export price gains. At 10 AM we get a reading on Consumer Sentiment which is expected to decline only slightly to 95.5 vs. the January number of 95.7 suggesting no panic in the recent market selloff. After that, we have reports on E-Commerce Retail Sales at 10:00 AM and the Baker-Hughes Rig Count at 1:00 PM but both are very unlikely to move the market.
On the Earnings Calendar, we get a break in the pace of earnings reports with less than 60 expecting to fess up today. Stay on your toes because we have about 700 companies on the calendar next week.
Action Plan
Yesterday the market produced a very big whipsaw to test the nerves of traders. The Dow gapped up more than 200 points but slipped negative within 1.5 hours then rallying 300 points into the close. That means that over the course of the day the Dow traveled more than 700 points. Just what the doctor ordered for quick day traders but challenging for swing traders. For the first time in 2-weeks of trading, the futures are not suggesting a triple-digit gap. In fact, as I write the futures are close to flat but of course, as earnings and economic reports roll out a lot can change.
The relief rally is now six days old bring the DIA and SPY back above the 50 SMA. The QQQ’s have established clear leadership, and the poor IWM continues to lag behind still below key resistance levels. As you plan your day, keep in mind, that we have a 3-day weekend ahead. After six days of rally and facing a long weekend it would not be surprising to see a little profit-taking begin. However, with volatility remaining so high, anything is possible. Guard against complacency and remain focused on price action clues.
Trade Wisely,
Doug
Fear of Missing Out
Another day and another big gap expected as volatile price action continues. With so much drama in the price actions, it’s easy to feel the as if your missing out. The fear of missing out is a very powerful emotion that will often cloud a traders judgment, and the chaise is on. Traders will leap without looking buying positions at or near price resistance level. Sometimes you will be rewarded for taking this risk, but often you get in right at the point where profit-taking begins. If the futures remain at current prices, the DIA and the SPY will gap up to 50-day average resistance. That means both indexes will be up over 17% in just five days. Consider that as you plan the day ahead.
On the Calendar
A big day on the Economic Calendar this Thursday. We have four important reports coming at 8:30 AM Eastern. 1. Jobless Claims – expected to rise to 229K vs. the 221K on the last reading. 2. Pilly Fed Bus. Survey – expected to hold steady and strong at 21.0 which is said to be near capacity. 3. Empire State Mfg. – Is expecting to slow slightly from the Jan. 17.7 reading to the Feb. consensus of 17.5. 4. PPI – forecasters see overall producer prices gaining 0.4%, less food, and energy up 0.2% and trade services also up 0.2%.
At 9:15 is the Industrial Production numbers which consensus expects to increase 0.2% with capacity utilization up one-tenth to 78.0%. The Housing Market Index is out at 10:00 AM and is expected to show steady strength but unchanged at 72. Treasury International at 4:00 PM is not forecasted forward but tracks the flow of financial instruments into and out of the United States. Also on the calendar are several non-market-moving reports as well as a bunch of bond events.
On the Earnings Calendar, I show just over 170 reporting results today to keep us on our toes.
Action Plan
Nice rallies across all four major indexes but only the QQQ’s have managed to cross back above the 50-day average. Dow Futures are very strong this morning pointing to more than a 200 point gap up testing 50-day average on the DIA and the SPY. A failure at or near the 50 SMA would set up a possible Blue Ice Failure pattern so be careful not to chase this gap up to resistance. With any luck, the leadership in the QQQ will help lift the markets out of the danger zone. Another positive for the market is that the VIX finally broke lower yesterday to close below a 20 handle. Continue to expect very fast price action and watch price closely for possible whipsaw action at resistance levels.
Trade Wisely,
Doug
The Friday was a welcome sight but was it truly a hold of price support. When the market is bearish, it’s easy to for traders to mistake a relief rally for bullishness. Please keep in mind that a one-day-rally does not reverse a downtrend. Remember to confirm a bullish candle price must follow through. Over the years I learned that lesson the hard way by jumping in thinking I was clever enough to catch the exact bottom. Although it would work every now and then, more often than not, I had my head handed to me with a big loss. Not so clever after all!
