Danger still lurks.
Although short-term rally has eased tensions and provided some sweet relief, danger still lurks. It’s so easy to become fixated on the hard right edge of the chart and getting lost in the intra-day gyrations in price. If we take a critical look at an index entire chart, we have several important clues that should have you on the edge of your seat. First and most obvious is that all the major indexes are in a current downtrend. The rally is testing not only the downtrend but also some very significant price resistance levels. Also, we are still below the 50-day average, the T-line, and that the 34 EMA is dangerously close to dropping below the 50.
Trust me I want to market to resume its uptrend as much and anyone else. However, if I allow that bias to cloud my view of the potential dangers displayed in the chart, I’m failing as a technical analyst. Always take the time to look at the big picture and remember Price is King!
On the Calendar
The hump day Economic Calendar has four important reports. Inflation hawks will be keeping a very close eye on the Consumer Price Index which comes out at 8:30 AM Eastern. The consensus is looking for a gain of 0.3% on the month but also expecting the yearly rate to slightly decline. Also at 8:30 is Retail Sales where forecasters see an overall moderate 0.3% gain. Then at 10:00 AM we get the Business Inventories Report which forecasters expect an increase of 0.3%. The EIA Petroleum Status report is at 10:30 AM. They don’t forecast this number, but the last 2-reports have shown a build in supplies, a 3rd would begin a trend hurting oil-related stock prices.
On the Earnings Calendar, I show just about 180 companies will report results. Make sure your check and planning for these events to avoid undue risk to your account.
Action Plan
The market spent another day chopping sideways taking a break from the huge daily price moves. On the positive side, the bulls were able to shrug off the morning gap down and close just slightly higher. On the negative side, the market continues to deliver triple point gaps daily and remains under price resistance and the 50-day average. At the close yesterday, the VIX drifted just below 25 but seems stubbornly resistant to a pullback keeping traders on their toes.
The CPI this morning could be very import today to determining market direction. A print below 2.0 could bring out the bulls while a number over 2.0 could bring out the bearish inflation hawks. Currently, the Dow Futures are pointing to 100 point gap up, but that could quickly change if inflation raises its ugly head. Please keep in mind that all the major indexes are below significant price resistance levels. Which means a failure pattern near resistance is still possible which could once again inspire the bears. Extreme caution is still warranted as we approach resistance with high volatility.
Trade Wisely,
Doug
Protect Your Capital
I often say trading is a business. With the trader as the CEO of the business, it’s our responsibility to make money. As a result, it only natural that we want to trade every day. It’s very easy forget that if we are to make money, then it must be the first order of business to protect your capital. If your anything like me patience is a skill that I have to work on every day of my life. The truth of the matter is that most of us have very little natural patience.
To combat our natural tendencies is why we as traders must have a well thought out trading plan and develop the discipline to follow the rules. With volatility so high my edge is gone, and it’s my discipline to follow the rules of the plan that protects me, from me. I have learned the hard way that if I break my rules, the consequence of that action is often a capital loss. The choice is yours. Will you exercise the discipline necessary to follow the rules that protect your capital or will you allow your impatient nature to rule?
On the Calendar
Another very light day on the Economic Calendar today with no market-moving reports. There is a Fed Speaker at 8:00 AM Eastern which happens to be the biggest event listed today.
On the Earnings Calendar, we have about 150 companies reporting today. Make sure your checking and have a plan for companies you hold or thinking of buying.
Action Plan
The big gap up yesterday seemed to run directly into a stone wall as there were no follow-through buyers. The VIX pulled back ever so slightly but remained very high by the end of the trading. The decision to stand aside is a difficult one for most traders, but it seems to have been a good call considering the morning futures. As I write this, the Dow Futures are pointing to gap down in the Dow of more than 150 points. That could potentially create a failure pattern on the index ETFs.
Now the question is can the market hold creating a higher low we can work with, fall to lows to find support or will it drop right on through creating a new low. Continue to expect very past price action with the VIX likely rising at the open today. Remember that sitting in cash is a position and one that protects your capital in times of such volatility. Try to be patient; good things come to those who wait.
Trade Wisely,
Doug
Blue Ice Failure
Yesterday I wrote that the market was walking a tightrope and a misstep could bring on Blue Ice Failure pattern. Unfortunately, that misstep occurred bringing down the Dow 1032 points at the close. The VIX rallied back above 33 as fear and panic gripped the market. Many are pointing to the fear of rising interest rates as the catalyst for the selling, but I think the real culprit is the leveraged VIX products. They seem to be blowing up in the face of the institutions that created them and costing them 100’s of millions. In the weeks and months ahead I suspect we will hear a lot more about what really happened.
Once again Futures in the pre-market are all over the place with very fast price action and quick reversals. On the positive side, company earnings continue to come in very strong for the most part. Today I am once again suggesting extreme caution. The indexes are currently testing important price support levels. If they hold the worst of this selloff could be over, however, should they fail today day could be a very dismal day as we seek the next level of support? Falling to the 200-day morning average is not out of the question.
On the Calendar
The market could use some good news this morning, but there is no major report on the Economic Calendar today. In the National News, the government finally passed a budget in the wee hours of the morning avoiding a shutdown.
On the Earnings Calendar, we also get a break today with just under 50 companies expected to report.
Action Plan
The DIA, SPY and QQQ’s finally came to rest at or near a key level of price support. The major question for today is will it hold? With the SPY only 4 points away from the 200-day moving average I fear the selling could easily continue to test this important level. The QQQ’s would need to fall over 5 points to test the 200 while the DIA would need to decline a whopping 11 points to visit this important average. That would mean the Dow falls another 1100 points! So cross your fingers and hope the current price support holds.
With volatility so high anything is possible. This is a market for the very fast day traders and big institutions. As swing traders, we have no edge amidst the fast reversals and whipsaw price action. As a result, I continue to remind everyone that cash is a position and in the current market condition it’s a darn good one.
Trade wisely,
Doug
Walking a Tightrope
With price volatility high and potential failure patterns left behind, yesterday traders should be on high alert. It’s as if the market is walking a tightrope where just one misstep could lead to a quick and painful fall. At the close yesterday, the VIX was on the rise closing above 27 to display the rising trepidation of the current market conditions. Currently, the DIA, SPY, and QQQ charts have bearish failure patterns at the 50-day moving average. Personally, my hope is we can consolidate for several days to spill-off a bunch of this volatility but to ignore this pattern would be unwise.
On The Calendar
The Thursday Economic Calendar is full of non-market moving reports, bond events, and four Fed Speakers. The only market-moving report comes at 8:30 AM Eastern when the weekly Jobless Claims number release. Consensus expects claims to come in at 235,000 continuing to confirm strong labor demand.
On the Earnings Calendar, we have nearly 250 companies reporting. Before the bell today we will hear from CVS, PM K, TWTR, and YUM to name a few. After the bell reports from AIG, NVDA, ATVI, EXPE, SKX, and FEYE are a few keep traders on their toes.
Action Plan
Yesterday proved to be a choppy day of price action as the DIA, and SPY attempted to recover the 50-day moving average. Unfortunately, by the end of the day, they were unsuccessful, setting up a possible Blue Ice Failure Pattern. The QQQ also made a valiant attempt to hold the 50-day average only to give it up just slightly at the close. Surprisingly only the IWM managed to hold on to a positive close but remains the weakest of the 4-major indexes.
The VIX tried moving lower but finished the day above 27 suggesting market volatility will remain challenging. With the failures a the 50-day average its impossible to see anything other than a bearish pattern. Morning Futures are currently pointing to a lower open at least initially confirming a Blue Ice Failure pattern. However, there are a lot of earnings reports this morning that could improve or make worse the situation. Combine the bearish pattern with high volatility, and the conditions for a perfect storm exist. I recommend extreme caution as we head toward the weekend.
Trade Wisely,
Doug
High Volatility
After the very choppy morning session, Mr. Market finally got it together to deliver some sweet relief. I wanted to believe the big swings were over but I stuck to my rules choosing to wait for proof of support. The Dow Futures moved from 250 points down to nearly flat in just one hour this morning. Such high volatility can produce false signals and violent reversals. I’m glad I have developed some discipline in my old age and decided now to chase yesterday. Remember. just like the Grinch, Mr. Market can be a Mean One.
The VIX pulled back yesterday due to the late afternoon rally, but it still closed above a 30 handle. That would suggest that there is still considerable fear and violent gaps and price reversals are very likely. For the last couple years, the market was very forgiving, but for now, that has changed. If your chaise or try to predict a bottom, a punishing lesson in discipline is now a possible result.
On the Calendar
The Economic Calendar has a parade of Fed Speakers to pontificate on interest rates. Kaplan spoke at 6:00 AM, Dudley at 8:30 AM, Evans at 11:15 AM and Willams will finish the day at 5:30 PM. The important report of the day is the 10:30 AM EIA Petroleum Status report.
On the Earnings Calendar, we have nearly 200 companies reporting today. Combine a bunch of earnings with an emotional market, and anything is possible so stay on your toes.
Action Plan
At 6:00 AM Eastern the Dow Futures pointed about a 250 point gap down. By 6:00 AM Futures had recovered to an almost even open which suggest there is still a lot of risk due to huge emotional volatility. The relief rally was, of course, wonderful yesterday afternoon but keep in mind the VIX closed above a 30 handle.
I expect volatility to continue to produce fast price action and whipsaws. False signals and head-fakes are very common. Even the best of signals can quickly evaporate in this environment. I continue to recommend extreme caution and remember the lows could see another test. New and inexperienced traders should consider remaining on the sidelines until the price action slows back down. If you do decide to trade, I suggest trading smaller than normal positions. Don’t get caught up in the drama. Stick to your rules and matain your discipline.
Trade Wisely,
Doug
The Good, The Bad and The Ugly
Can we go back to 2017? So far 2018 has tossed at us The Good, The Bad and The Ugly in the time span of just over one month. The Good, record highs and tremendous bullishness for the first 25 days of the year. The Bad, last Friday’s nasty selloff of nearly 700 Dow points. The Ugly, yesterdays record-breaking one-day selloff that wiped out all the progress for the year and then some. So what happened?
Fear got a little out of control yesterday as the market watched Bond Yields rising rapidly and topping 2.8% by the close. The market has also suddenly become hyper-aware of inflation and what that might mean for interest rates going forward. As traders, we always try to compartmentalize the cause of such events to and make some sense of it all. But the truth is when markets are euphoric or panic-stricken, it rarely makes sense. Unfortunately this emotional roller coaster and last much longer than one would expect. The only way to protect yourself and your capital is to stand aside and let it pass.
On the Calendar
The Tuesday Economic Calendar kicks off with International Trade at 8:30 AM. Sadly the trade deficit is expected to widen sharply to $51.9 billion. At 10:00 AM the JOLTS report is looking for a slight gain to 5.900 million today according to consensus estimates. The is a Fed Speaker at 8:50 AM and some bound auctions to complete today’s calendar.
Today is a pretty big day on the Earnings Calendar with about 150 companies scheduled to fess up. Today, we will hear from GM, DNKN, DIS, GILD and CMG just to name a few.
Action Plan
Futures have been moving very quickly and all over the map during the overnight session. Around 11 PM last night Dow Futures were down nearly 900 points. By 4:00 AM they were up more than 150 points but as I write this at 7:12 AM they are nearly 400. All the blood in the water has attracted the really big sharks. Whipped into a feeding frenzy, they will bite at anything, and we can expect this to last for a while. Little fish like retail traders are just chum in the water and stand very little chance of escaping if we’re in the water. Day’s, maybe even weeks of very challenging price action lie ahead. Get out and stay out of the water if you can.
Trade Wisely,
Doug
Extreme Moves
We all know that that the bulls were over exuberant and pretty much everyone and their dog expected a pullback. However, Friday’s extreme moves appeared to be excessive, right? Honestly, not so much. If you put it into the context of a 16500 point rally in the first 25-days fo January, you realize it’s only a reversion to the mean. Nevertheless, the violent nature of the move is shocking an I doubt anyone expected a 700 point move in one day! Volatility is very likely to continue making swing trading very challenging. Don’t make a mistake and assume that the market is suddenly oversold and predict the will rally. It can simply consolidate before resuming a downtrend!
On the Calendar
The is only one report of consequence on the Economic Calendar today. At 10:00 AM Eastern is the ISM Non-MFG Index which has cooled recently but remains mostly in the mid-50’s indicating growth. Forecasters are calling for an increase to 56.2 today. After that with have some bond announcements and auctions to round out the day.
On the Earnings Calendar, we have 70 companies reporting. Stay on your toes this week there are a lot of reports on the calendar. Prepare, plan and always check reporting dates of companies you own and those you are thinking of buying.
Action Plan
Without question, Friday produced shocking bearishness breaking supports as traders ran for the exits ahead of the weekend. Swing traders are mostly positive people, and the vast majority only want trade long. As a result, when they see a huge move lower like we did Friday they naturally want to believe the selloff is over. They try to predict when the bounce will occur only to find out that the sellers have more to say. Much like this morning with the Dow Futures suggesting more than a 200 point gap down! Even when the selling does stop, keep in mind that it could just consolidate before moving lower. Consider the fact that Dow 25,000 needs a test as support.
Remember every day does not have to be traded to be successful. Wait for good quality signals and remember the market is now very emotional. Big morning gaps and intra-day reversals could be the new normal in the short-term.
Trade Wisely,
Doug
No Edge
Increased volatility, big overnight gaps, and violent reversals are great for very fast intra-day traders. However, for the average retail swing trader, it means we have No Edge. Everything that seemed to be working so well just one week ago is not working now. That is the nature of the market. It’s always changing and often that change is violent. As a result, we as traders must recognize the change and quickly adapt or better yet just stand aside and protect our capital. This week should be proof of the fact that not every day is a good day to trade and that setting in cash is a good position. Eventually, all this wild emotional price action will come to an end, and cooler heads will prevail. The question is will you be ready to trade or chopped to pieces trying to trade with no edge?
On the Calendar
We get things going on the Economic Calendar today with the very important Employment Situation report at 8:30 AM Eastern. Consensus suggests nonfarm payrolls of 175,000 and an unemployment rate holding at a 17-year low of 4.1%. Average hourly wages are expected to increase 0.3% with the average workweek unchanged at 34.5 hours. Private payrolls are expected to increase 172,000 with manufacturing increasing by 18,000. At 10:00 AM both Consumer Sentiment and Factory Orders numbers release. Consensus suggests January Consumer Sentiment will come with a 95.0 reading. The Factory Orders index is expecting an increase of 1.5% according to consensus. We finish the week with two Fed Speakers at 1:30 PM and 3:30 PM.
We get a little break on the Earnings Calendar with only 46 companies reporting today. Oil will take center stage with CVX, XOM, and PSX reporting before the bell.
Action Plan
Everything was looking okay until we had an unfavorable economic report yesterday morning creating a sudden gap down. The bulls stepped filling the morning gap but failed to have enough strength to hold on to those gains by the end of the day. As I write this, the Dow Futures are pointing to a nasty gap lower of more than 200 points. I have been suggesting for some time now to prepare for increased volatility, but it’s still shocking to see the violence of these moves. The big overnight gaps in both directions can chop an account to pieces. I mentioned earlier this week to expect challenging price action and suggested new and inexperienced traders might want to watch from the sidelines. Sadly that was a correct call.
The Employment Situation numbers this morning have the potential to improve or make worse today’s open. Anything is possible. I think the wild price action, quick reversals, and overnight gaps could become the new normal at least for the short-term. Be very careful. Have a wonderful weekend everyone.
Trade Wisely,
Doug
Rough but not unexpected.
Rough but not unexpected, is how I would describe yesterdays price action. The 2018 bull run has been like a 5-year old hopped up on sugar and caffeine. It’s a blast while it lasts, but the crash after it wears off can be brutal. On the positive side, the economic markers continue to be very strong, and thus far earnings have supported this lofty level. On the negative side, inflation seems to be heating up, and that may force the FOMC to raise interests rates beyond whats already expected. Elevated volatility could be here to stay at least for the short term. Price action over the next several days could be very challenging especially for inexperienced traders. Now is the time to maybe do a little less trading, a little more trade preparation, and become very picky about the trades you take.
On the Calendar
We have a busy Economic Calendar on this last day of January. We get going with the ADP Employment report which is looking for a private payroll number of 195.000 at 8:15 AM Eastern. At 8:30 AM we get a reading on the Employment Cost Index where forecasters are calling for a 0.6% rise. 9:45 AM brings the Chicago PMI which forecasters are calling for a slight easing but still a very strong reading of 64.0. The Chicago economy is at historic highs in data that goes back more than 50 years! We get a reading on Pending Home Sales at 10:00 AM where the consensus expects a solid gain of 0.5%. The EIA Petroleum Status comes in at 10:30 AM, and although there is no forecast, the trend suggests oil supplies will continue to decline. The biggest report of the day will, of course, be the FOMC Announcement on interest rate policy at 2:00 PM Eastern.
Earnings reports continue to ramp up with over 150 companies reporting today. Stay on your toes and have plans prepared for the companies you hold or are considering for purchase.
Action Plan
An ugly day for the markets yesterday with a big gap down and saw continued selling as the day progressed. This morning futures are suggesting a bounce with the Dow currently showing about a 200 point gap up. I have been suggesting for some time now to prepare for higher volatility, and I suspect it will make for challenging trading for several weeks to come.
As a result, expect bigger daily swings and overall point travel during the day. Overnight reversals are common in this environment as well as intra-day whips that can be pretty dramatic. We have several weeks so of earnings reports yet to chew through that will add to the uncertainty. Today after the morning rush we could see the market become very choppy as we wait for the FOMC Announcement at 2:00 PM. With overall market trends broken and so much whipped up emotion, it may be wise just to sit back and watch the show unless you are a very fast day trader.
Trade Wisely,
Doug
The bears woke up!
The bears woke up. We all knew the day would come when the bears would launch a full-scale assault. Unfortunately, they used the cover of night to attack making it difficult for the retail trader. As bad as it may initially seem let’s keep in mind good earnings are continuing to come in, and the bulls are unlikely to give up easily.
Those who chased stocks that were well within their run will suffer the most this morning. Those that took profits along the way and reduced the number of positions held will likely experience some losses today but it should not too punishing. It would not be at all out of the question to the Bulls mount a strong defense after the open. Keep in mind the buy the dip crowd could rush in creating a short squeeze. Although the this is the very first bearish follow-through day of 2018, remember it’s not the open that matters it’s how we close the day that does!
On the Calendar
Tuesday’s Economic Calendar starts off with the beginning of the 2-day FOMC meeting. It’s the final meeting with Yellen at the helm. At 9:00 AM Eastern the Case-Shiller report is expected to show a solid 0.6% gain. The consensus is for the unadjusted year-on-year rate to come in at 6.4%. Consumer Confidence is out at 10:00 AM is exp[ected to come in at 123.4 up slightly from the December reading of 122.1. We have an another 10:00 AM report on Investor Confidence which is unlikely to move the market, a couple of bond auctions and Farm Prices report at 3:00 PM.
On the Earnings Calendar, there are just over 110 companies reporting today. Before the bell, we will hear from PFE and MCD after the bell JNPR steps up to report.
Action Plan
The Bears decided to make an appearance yesterday closing all four of the major indexes lower on the day. Technically the DIA got the worst of it closing below the Monday’s strong candle. SPY and the QQQ faired much better only producing inside candles while IWM closed near the low of its consolidation pattern. Unfortunately, the Bears waited to mount their full-on attack in the overnight session pushing the Dow futures down more than 200 points. As I write this, the bulls managed to recover some of the overnight losses, but currently, the Dow Futures point to a gap down of 150 points.
It would appear that at the open we will see the very first follow through by the Bears this year. Keep in mind this is earnings season, and the bulls are not likely to give up easily. Although this may be a painful morning, try not to panic and keep in mind a strong whipsaw rally is possible assuming earnings continue to come in strong. Remember the first move lower from a top is not where the real selling is likely to occur. Expect some fast price action this morning as volatility spikes at the open. We all knew this day was likely to come and that is why we plan. Avoid making emotional decisions follow your plan.
Trade Wisely,
Doug
Although short-term rally has eased tensions and provided some sweet relief, danger still lurks. It’s so easy to become fixated on the hard right edge of the chart and getting lost in the intra-day gyrations in price. If we take a critical look at an index entire chart, we have several important clues that should have you on the edge of your seat. First and most obvious is that all the major indexes are in a current downtrend. The rally is testing not only the downtrend but also some very significant price resistance levels. Also, we are still below the 50-day average, the T-line, and that the 34 EMA is dangerously close to dropping below the 50.
