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
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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
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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
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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
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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
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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
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Bulls maintain control.
The Bulls maintain control holding off profit takers yesterday with the IWM rising to new record highs and the QQQ’s pushing higher. That’s all good, but there is reason for some caution with the DIA and SPY chopping sideways below price resistance levels. The trend of all four indexes is still up so don’t read caution as bearishness. The Bulls are still in charge at the moment however the big question of the day is will they maintain that control after the FOMC announcement and forecast is released?
Currently, futures are pointing to a bullish open but don’t be surprised to see choppy price action after the morning rush as we wait on the Fed decision. After the release and during the Chairman’s press conference anything is possible. Expect wild swings and very fast price action as the reacts. Plan your risk accordingly.
On the Calendar
A busy day on the Wednesday Economic Calendar gets going with potential market-moving reports at 8:30 AM Eastern. According to consensus producer prices will increase by 0.3 percent for the Headline with 0.2 percent when excluding food, energy and trade services. At 10:30 AM is the EIA Petroleum Status report which is not forecast forward. Then at 2:00 PM comes the big event of the day with the FOMC Announcement and Forecasts. Most expect an interest rate increase of 25 basis points, but the real fireworks will be in the forecast. The excitement will continue with the Fed Speaker press conference at 2:30 PM to close the calendar day.
On the Earning Calendar, we have 26 companies reporting results today, none of which look particularly market-moving.
Action Plan
A bit of a mix in the indexes yesterday as the DIA and SPY did a sideways shuffle while the QQQ and IWM managed modest increases. All and all a good day considering the uncertainty swirling around the market. With the FOMC today we could see choppy sideways action continue after the morning rush until 2:00 PM Eastern where we’re likely to see wild price swings in reaction to the statement and forecast. I think the expected 25 point basis increase is already baked into the market so it will be the forecast that lights off the fireworks. Will, the Fed come of more hawkish by planning additional rate hikes into the future or will they shift to a more dovish stance?
There is a good chance that I will reduce risk ahead of the announcement by taking some profits on existing positions. I will also avoid considering new risk until after the announcement and the market reaction has picked a direction. In on the words, I want to keep my powder dry until the storm has passed.
Trade Wisely,
Doug
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The FOMC
The North Korean agreement in the rear-view mirror the market can focus on the FOMC. The odds of a rate increase are very high, but the big question is will the FOMC stop its balance sheet reductions early? At 2:00 PM Eastern tomorrow we will know the answer, until then its only speculation. If the FOMC does surprise the market with a change in policy, there will likely be a significant reaction in price. It may be wise to consider your risk and how much you are willing to hold ahead of the announcement.
Tensions between the US and Canada on trade negotiations seem to be growing with our leaders seem unwilling to play nice with each other. Needless to say, any news that improves or worsens the trade negotiation process could quickly move prices. The market hates uncertainty so stay focused on price action for clues and remain flexible.
On the Calendar
Topping the Tuesday Economic Calendar is the start fo the June FOMC meeting which will culminate with their Announcement and Forecast at 2:00 PM Eastern tomorrow. At 8:30 AM Eastern we get the latest reading on the Consumer Price Index where forecasters expect the core rate up 0.2 percent and the Year-on-year up three tenths to 2.8 percent. The Redbook is at 8:55 AM then two bond auctions at 11:30 AM and 1 PM. The Treasury Budget comes out at 2:00 PM and is expected to show a deficit of 144.0 billion according to forecasters.
A light day on the Earnings Calendar with just 25 companies reporting earnings. Notable earnings before the bell is LE with HRB reporting after the market close.
Action Plan
With a historic agreement signed to denuclearize North Korea the market has now turned its attention to the war of words between the US and Canada and the FOMC meeting that kicks off this morning. Futures are currently pointing to a slightly lower open but should not be too big of a surprise considering the Dow has gained nearly 1000 points in just over a week. Keep in mind; it was just nine trading days ago the Dow was treating to fail of the 50-moving average. Both the Dow and SPY left behind possible topping candle patterns at price resistance points suggesting a little caution might be in order.
As we wait for the FOMC decision, it’s not uncommon for the market to become a bit anemic on volume with choppy price action. However, considering the sharp rally and the jitters over trade negotiations some profit-taking would not be out of the question. I will be watching price action closely today and will likely take some profits to reduce risk before the FOMC announcement.
Trade Wisely,
Doug
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A lot on its plate.
With trade negotiations seemly on shaky ground and a Wednesday afternoon, FOMC interest rate decision looming the market has on its plate as we begin this trading week. On the positive side, the four major indexes are in current up-trends with the momentum favoring the bulls at the moment. Speculation that the FOMC could end its balance sheet reduction program earlier than expected also favors the bulls because the market loves a relaxed FOMC policy.
On the negative side, we have all the political jitters of shaky trade negotiations and the upcoming summit with North Korea. The market hates uncertainty and as world leaders continue a public battle of words the market is justifiably nervous of about the possible outcome. Politically driven markets are challenging because they can suddenly reverse overnight. Have a prepared plan, try to say flexible and unbiased and focused on price action for clues.
On the Calendar
There are only bond announcements and bond auctions on the Economic Calendar today. The begin at 11:00 AM Eastern and close out the calendar day at 1:00 PM. They are of course very unlikely to move the market.
On the Earnings Calendar, we have only 38 companies reporting results today, and I don’t see any that would market-moving reports. However, make sure your checking earnings dates against current holdings and have a plan to deal with the risk.
Action Plan
After a bumpy G7 where it looks as if trade negotiations in the North American agreement have taken an ugly turn for the worse. However, with speculation that the FOMC may stop reducing its balance sheet much sooner than expected appears to have evened out the market jitters. Currently, the Dow Future’s are pointing to a flat open, but with all the political uncertainty brewing traders should be prepared for just about anything.
With the DIA, SPY, and QQQ all at or near new levels of price resistance, traders will have stay focused on price action for clues. Momentum currently favors the Bulls, but after such a strong rally last week it would not be a big surprise if profit takers begin to step in at any time. The trend of the overall market continues to be bullish thus a consolidation or light pullback that holds the trend could easily attract more Bulls. With trade war jitters and an FOMC meeting interest rate decision on Wednesday afternoon, traders will have to stay flexible. Remember the market has three directions of possible movement; up, down or sideways. Light choppy price action would not be out of the question as we wait for the FOMC decision.
Trade Wisely,
Doug
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Politically Charged Weekend
As we head into the uncertainty of a politically charged weekend its easy to become frustrated when we experience overnight reversals such as the one we’re likely to experience this morning. Yes it frustrating but we should also be very grateful for the fantastic profits this weeks rally provided. We saw new record highs in two indexes with the other two finally found the energy to break through key resistance levels. All and all a really good week of trading.
With the 2-day G7 meeting about to begin in the midst of trade negotiations, it’s not a big surprise that the market is a bit apprehensive ahead of the weekend. Directly after the G7 meeting, the president travels to Singapore for the North Korean summit. Plan your risk carefully as we head into the weekend.
On the Calendar
We have a very light day on Friday’s Economic Calendar with no expected market-moving reports. At 10:00 AM is the Wholesale Trade report, and the Baker-Hughes Rig Count is at 1:00 PM closing the calendar day.
The Earnings Calendar is also light today with only 13 companies reporting earnings today with AMED being one of the most notable after the bell.
Action Plan
We closed the day yesterday with some clues that the current market rally could be running out steam. The candle patterns left behind suggest a little caution that a consolidation or market pullback could soon begin. Unfortunately, caution seems to have flown directly into a TweetStorm as France and the US square off ahead of the G7 meeting in Canada.
As I have mentioned before, political uncertainty creates one of the most challenging environments for traders. With the G7 meeting, this weekend followed directly by the US-North Korean summit; there is plenty of political uncertainty facing the market ahead of the weekend. Currently, the Dow Futures are suggesting a gap down of more than 100 points. Protect your profits and plan your risk carefully as we head into the weekend.
Trade Wisley,
Doug
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