Follow Through

Yesterday’s big bullish move was certainly encouraging.  Obviously, the market has no trouble making big daily moves and has certainly proved that over the last couple weeks.  Following through, on the other hand, seems to be a puzzle the market seems unable to solve.  Yesterday the Dow gaped up nearly 300 points and managed to push higher closing up 428 on the day.  However, with the Dow Futures currently indicating to a gap down of more than 200 points at the open follow through once again appears to be a major problem.

To maintain a trading edge, most traders need at least one day of follow through in a stocks price action.  Even during periods of normal market consolidations, good technical analysts can do very well.  Unfortunately, when the market experiences big overnight gaps on a daily basis that changes direction almost every day maintaining an edge is nearly impossible.  The good news is this very whippy price action will eventually end, and better days lie ahead.  Protect your capital and wait for those better days when the market proves it can follow through or watch your account get chopped to pieces trying to fight the whip.  The choice is yours.

On the Calendar

On the hump day, the Economic Calendar has four potential market move reports.  At 8:30 AM Eastern the Consumer Price Index is expected to come in flat according to consensus.  Core prices could see a modest 0.2% increase with the overall CPI rising to 2.1%.  At 10:30 AM is the Petroleum Status Report which is not forecasted forward but has recently seen supplies decline supporting oil prices.  Then at 2:00 PM we get to take a look at the minds of the FOMC with the release of the minutes which can obviously move the market.  Also at 2:00 PM is the Treasury Budget which is expected to show a large deficit of 186 billion.

On the Earnings Calendar, we only have 11 companies reporting earnings.  Notable before the bell is FAST and after the bell, BBBY step up to report.

Action Plan

We whip up one day and whip down the next, chopping up accounts and destroying the confidence of traders trying to fight it.  After a nice gap up and run yesterday traders now face another overnight reversal with the Dow Futures pointing to more than a 200 point gap down.  If you stand in a fire, then you have to accept the likelihood you will get burned.  There is little to no edge for swing traders in this kind of whippy price action.  As a result, I will continue to stand aside protecting my capital from being chopped up and waiting for an edge to return.

Trade Wisely,

Doug

A single Speech

What a difference a single speech can make during periods of political volatility.  In what seems to be a dramatic policy reversal of trade the Chinese leader appeared to agree to all the Fair Trade points that have been made by the President.  Let’s hope words actually translate into an enforceable agreement that finally levels the playing field.  Clearly, this will take time, and there will still be considerable political jockeying, but at least for the moment, the market seems able to breathe a big sigh of relief.

All eyes will likely focus on the testimony in Congress by Mark Zuckerberg and what it could mean for the future of FB as well as other data-heavy tech business.  I wouldn’t expect a quick resolution.  In fact, we could easily see a lot of regulation and government over site in the months and even years to come.  Needless to say, it could be a bit stressful for those holding FB as this process unfolds.

On the Calendar

The Tuesday Economic Calendar kicked off very early this morning with a Fed Speaker at 4:30 AM and the NFIB Small Business Optimism Index.  The most important report today, PPI, comes out at 8:30 AM Eastern where consensus expects a modest increase of 0.1 in March however the high estimate is at 0.4%.  Remove food and energy, and the expectation is for a gain of 0.2% with energy and trade services up 0.3%.  Other reports not expected to move the market today are Redbook, Wholesale Trade, two bond auctions and another Fed Speaker at 6:30 PM.

The off Calendar testimony of Mark Zuckerberg at two Congress session will likely dominate the news today and could easily move FB stock and could affect another tech prices as well today.

On the Earnings Calendar, I see only 15 companies reporting earnings today, none of which are likely to move the overall market.

Action Plan

Yesterday produced a nasty whipsaw with the bulls moving the Dow up as much as 400 points only have the Bears come back in with a vengeance late in the day.  Then after the close, China extended an olive branch essentially saying they plan to make huge concessions on trade which of course created yet another whipsaw in the overnight futures session.  As I write this, Dow Futures are indicated to open sharply higher by more than 250 points.  If the words actually translate into a fair trade deal with China, it could dramatically improve the overall economic outlook in the US.  Let’s keep our fingers crossed.

With the big morning gap on fading trade concerns, a short squeeze could easily trigger pushing the indexes sharply higher.  Keep in mind however that just one Tweet or poorly worded comment could send the indexes reeling so stay on your toes.  Expect fast moving prices and whippy price action this morning as the market reacts.

Trade Wisely,

Doug

You have control.

In a market producing daily gaps, overnight reversals, and intra-day whipsaws it seems that chaos is now in control of a traders destiny.  Not true.  As the CEO of your trading business, you have control and are ultimately responsible for your trading decisions.  I have to admit this was a very hard lesson for me to learn and it cost me a lot of time and capital before the truth of that statement sank into my hard head.  I would blame the news, some talking head, earnings the President or anything else I could think of for the reason I was losing money during volatile markets.  The truth is the problem was me!

I was the one deciding to trade when there was no edge.  It was me pulling the trigger, and I was the one that needed to accept the responsibility of losing money when I was trying to fight a volatile market.  While it’s true someone is making money in the market every day that doesn’t mean your particular style or skills will.  If you feel like your fighting the market and consistently losing money, then you probably are.  You are in control.  Stop trading until the volatility subsides and your edge returns.  One of the hardest things in the world is to face the person in the mirror and admit you are the problem.  However, if your consistently losing money in this environment perhaps it’s time to have that face to face an realize you have control.

On the Calendar

We kick off the 2^nd week of March with a light day on the Economic Calendar with no expected market-moving scheduled.  We have three bond events and the TD Ameritrade IMX which intends to show how investors have positioned themselves in the market.  Keep in mind that the FOMC minutes come out Wednesday of this week.

On the Earnings Calendar, there are just over 34 companies expected to report earnings.  Although all earnings are important if you happen to hold or thinking of buying a company that’s expected to report, I don’t see any particularly market-moving reports today.

Action Plan

Friday was sure discouraging as the Bears overwhelmed the bulls closing the Dow down 572 points.  The good news is that four major indexes managed to hold above their 200-day moving averages.  The bad news is that each index closed the day with a bearish evening star pattern that produced another lower high in the current downtrend.

I have mentioned that the volatility created by political spin I consider to be one of the most challenging environments for traders.  Huge overnight reversals and nasty intra-day reversals can happen the instant a new spin from the media or tweet comes out which means retail swing traders have little to no edge.  Chart patterns and candle patterns which is the bread and butter for most swing traders only serve as traps that deliver big losses and chop up accounts in such a whippy environment.  Once again the overnight futures are producing a big gap and suggesting yet another reversal with the Dow currently looking to open 150 points higher.  With overnight whipsaws that are this extreme, trading is hard to distinguish from betting red or black on a Vegas Roulette wheel.

Trade wisely,

Doug

Tariff tensions.

With more tariff slings and arrows launched between the US and China overnight, the market once again makes a big overnight reversal.  As the tensions escalate, traders will have a decision to make as we head into the weekend.  Do you hold and accept the risk of possible big Monday gaps or do you take close positions to avoid the risk?  A tough decision to be sure.

The Employment Situation report this morning is expected to show our economy is strong.  However, the market is also walking a tightrope here due to the possible wage inflationary pressures.  As in the Goldilocks nursery rhyme, we need the porridge to be just right, or additional market concerns could also contribute to market volatility.  One thing seems certain; big daily price fluctuations are likely here to stay at least for the short-term.

On the Calendar

The Friday Economic Calendar has only one market-moving report at 8:30 AM Eastern.  The Employment Situation report is expecting about 185,000 in jobs growth in March non-farm payrolls.  The unemployment rate according to consensus declines to 4.0% pointing to the full employment and the possibility of future wage pressures.   However, consensus only expects a 0.3% increase in hourly earnings with a yearly uptick to 2.7%.  Manufacturing payroll is expected to increase by 20,000 with the average work week coming in unchanged at 34.5 hours.  Consensus also sees the labor participation rate ticking higher by two tenths to 62.8%  We have three Fed Speakers today with first at 10:30 AM and the second speaking at 1:30 PM and last talking at 4:00 PM.

A rather light day on the Earnings Calendar this Friday with only 17 companies expected to report results.

Action Plan

After two nice days of the market rally on decreasing fears of tariff uncertainty, the White House stepped up the rhetoric asking for another 100 billion in tariff increases.  There was an instant knee-jerk reaction with the Dow Futures quickly sinking more than 400 points after the news release.  Of course, China quickly responded with reciprocal threats.  Throughout the evening the Futures markets rallied back significantly but at this time indicate the Dow could gap down about 200 points at the open.

Such political uncertainty will likely keep the markets nervous and price action very volatile for the foreseeable futures.  As I mentioned yesterday traders will have to plan for this additional volatility and carefully weigh the risk because these big overnight reversals can be very punishing to your trading accounts.  Maintaining an edge is all but impossible with such politically charged volatility.

Trade Wisely,

Doug

Massive Short Squeeze

The quickly shifting sentiment on Trade War fears was reversed yesterday as White House officials spoke calmly of their intentions triggering a massive short squeeze yesterday.  From opening low to the high of the day, the Dow traveled more than 775 points.  There is still a lot of work to be done to confirm a market bottom, but yesterday bullish engulfing pattern at a major moving average is certainly a nice start.

The negotiations with China are far forming over so don’t’ be surprised if jitters and shock waves keep the market off balance and volatile in the day to come.  With so many charts producing buy signals, yesterday traders will have to be choosy and carefully weigh the risk of volatility against their tolerance when planning new positions.  Also, keep in mind after such a big move we could see some profit taking or consolidation ahead of the Friday’s job report.

On the Calendar

There is a full Economic Calendar this Thursday, but only two market-moving reports that both come out at 8:30 AM Eastern.  The International Trade deficit is expected to widen slightly to $56.7 billion in February.  This deficit is one of the trade metrics that is under negotiation with China that could quickly improve if a fair trade deal.  Then we have the Weekly Jobless Claims which consensus expects to come in at 230K.  Other than that we have several lessors reports a bunch of bond announcements and a Fed Speaker at 1:00 PM.

The Earnings Calendar is only showing 19 companies reporting earnings today.  Notable before the bell is MON, and then after the bell PSMT reports.

Action Plan

A big win for the Bulls yesterday after gaping down about 500 points the Dow recovered sharply to close the day up 230 points.  Such is the nature of politically generated volatility as panic, and then relief quickly reverses market sentiment.  Big bullish engulfing candles now grace all 4 of the major index charts at or near the daily 200 moving average.  Current downtrends have yet to reverse, and there is a lot of overhead resistance to deal with but yesterdays price action was a good start to a potential recovery.

Currently, the Dow Futures, point to a higher open but don be surprised if the market rests or pulls back as we wait for the Employment Situation report before the market open on Friday.  There are a lot of very good looking charts in the watchlist and scans.  If you trade to keep in mind, the threat of politically generated volatility still exists so plan your risk accordingly.

Trade Wisely,

Doug

Political Volatility

I have mentioned how challenging politically motivated volatility can be for traders.  The cruel overnight reversal triggered by a single Tweet is evidence of how damaging it can be to a traders account.  As technically, analysts, we try to maintain an edge through the study of price action.  Unfortunately, that edge completely disappears during periods of political uncertainty.  Very fast and experienced day traders can make hay in this kind of environment and investors simply ride it out.  It’s the swing trader that’s particularly disadvantaged by the violently shifting sentiment.  During times like this holding on to an edge is a bit like trying to rope the wind.

On the Calendar

The Wednesday Economic Calendar has several reports that the market could get a reaction from today.  At 8:15 AM Eastern ADP Employment report is looking for a slow down in job gains to 185,000 vs. 234,000 reading in February.  The Factory Orders at 10:00 AM is looking for a solid rise of 1.7% adding to the impressive strength of the February reading.  Also at 10:00 AM the ISM Non-Mfg Index is to continue showing strength with an expected reading of 59.0 today according to consensus.  Then at 10:30 AM we will get the EIA Petroleum status numbers which do not forecast forward but certainly have the power to move the market substantially.  Filling out the rest of the calendar we have the PMI Services index which is not expected to move the market as well a 2-Fed Speakers to be aware of at 9:45 and 11:00 AM.

We have only 36 companies on today’s Earnings Calendar.  Most notable is the report from CAR before the bell, and after the bell, we will get results from the home builder LEN.

Action Plan

Yesterday we had some sweet relief as the bulls started the day positive and continued to push higher steadily higher through the day closing the Dow up 389 points.  Unfortunately, all that good work looks to be completely reversed this morning as the Trade War rhetoric heats up.  As I write this, Dow Futures are pointing to a 500 point gap down as both the US and China issue threats of new tariffs.

As I mentioned earlier this week politically inspired volatility is a very challenging environment in which to trade.  Violent reversals that shift the course of the market, with the efficiency of the instant news cycle.  Swing traders are disadvantaged in such an environment which is clearly evident this morning.  Keep in mind the market could change again with the speed of a Tweet so plan your risk accordingly.

Trade Wisely,

Doug

Gloom and Doom

It’s pretty difficult when looking at index charts to see anything other than gloom and doom.  There is technical damage everywhere you look, and a general feeling of dread has gripped the market.  The financial news headlines have become predominantly negative with more and more talking heads predicting more gloom and doom to come.  Having traded for more than 28 years, I can tell this is the normal process of correction.

If you remember when the selloff began I suggested this would take weeks if not months to resolve.  That was not a prediction of the future just the experience of an old trader that has seen this many time before.  The market will eventually heal and better days will return.  Remember its always darkest before the dawn, and we will likely see more days of gloom and doom ahead but when it’s over a target rich environment will emerge as great stocks will be at discount prices.  Believe that.

On the Calendar

Motor Vehicle Sales tops the Economic Calendar which comes out very early in the pre-market and is the only report likely to move the market today.  Forecasters expect Motor Vehicle Sales to remain soft with total unit sales slipping to 17.0 million annualized rate vs. the February 17.1 reading.  Domestic sales expected to slip from 13.2 million in February to a 12.9 million rate today.  The Redbook is out at 8:55 AM, a Fed Speaker at 9:30 AM and a bill auction at 11:30 AM wrap up the calendar for today.

We also have a light day on the Earnings Calendar with only 18 companies expected to report results.

Action Plan

Yesterday was an ugly day in for the market with three of the four major indexes dipping deep enough to test their 200-day moving averages.  Only the QQQ managed to hold just above its 200-average which was just over one point away from the low of the day.  The SPY really took it on the chin closing below the 200-average, despite the late rally bouncing the indexes off the lowest prints of the day.  Even the popular FANG stocks had not escaped technical damage with AMZN now down more than 15% from its high print less than one month ago.

Currently, futures are pointing to a gap up open of more than 75 points, but I would be very careful trying to anticipate a bounce with the QQQ’s so close to a 200-average test.  If you take a look at the weekly index charts, we are very close to testing the weekly 50-averages which could easily see a test in the coming days.  Remember its always the darkest before the dawn.  The selling will eventually stop, and great stocks will be on sale at discount prices.  However, repairing so much technical damage could take some time, and we could see some very choppy price action ahead as the markets try and build a level of support.

Trade Wisely,

Doug

Do you believe in magic?

I’m going to kick off this quarter with a little rant.  Over the long weekend, my email and social media feed’s filled with all kinds of offers selling the dream of simple market riches.  They all allude to some newly discovered indicator or pattern that can suddenly transform any trader into the super wealthy almost overnight.  That is total BS!  There is no magic or double top secret newly discovered formula you can buy that will make you rich.  Sorry to burst your bubble but it’s the truth.

There is only one way to success in any business.  It’s called hard work.  It’s the original and the only magic formula to success.  Start with some education, develop a trading plan (business plan) pull up your big-boy britches and get to work.  Trading success is a marathon, not a sprint.  There are obstacles to overcome and a lot of frustrating times on the path to success.  However, if you stay dedicated, disciplined, focused, willing to pay your dues and put in the overtime, then success can be yours.  Choose to believe in all that other mumbo-jumbo and plan to provide liquidity to those that do it the old-fashioned way.  Hard work!

On the Calendar

The Economic Calendar on the first trading day of Q2 the Economic Calendar hits the ground running with three important reports.  At 9:45 AM Eastern we get the PMI Mfg. Index which consensus expects to come in steady and strong with a 55.7 reading.  The ISM Mfg. Index at 10:00 AM expects a slight decline to 60.0 vs. the 60.8 February print that hit a very strong 14-year high.  Also at 10:00 AM is Construction Spending which consensus suggests will bounce 0.5% higher in February vs. the flat reading in January.  There are 7-bond events on the calendar as well as a Fed Speaker at 6 PM to round out the day.

On the Earnings Calendar, there are 132 stragglers expected to report Q4 2017 earnings today.

Action Plan

On Friday the Bulls managed a nice bounce of more than 250 Dow points.  The bullish sentiment spread across the all 4 of the major indexes but they all remain in down-trending patterns and below significant levels of price resistance.  Historically stocks do much better in April, but we seem to be getting off to a rocky start for the Q2 with the Dow Futures currently suggesting a gap down open of more than 75 points.  China announced the new tariffs on more than 120 products yesterday as our two governments square off for a Trade War and keeping the markets on edge.

After a 3-day weekend, it’s normal to see some light and choppy trading as traders extend their vacations one more day but that may not be the case today with so much nervous energy.  With earnings and economic reports continuing to demonstrate strength, our current uncertainty is by-in-large politically generated.  Political volatility is very challenging to trade because complete market reversals can occur as often and as quickly as the political spin shifts.

Trade Wisely,

Doug

Three-Day Weekend

With the wild 2018 Q1 coming to an end today it seems very appropriate it culminates with a three-day weekend.  Tensions have been very high, and nervous traders could use some time to decompress and prepare for Q2.  Typically, volumes drop ahead of a long weekend and price action becomes quite choppy.  However, with frayed nerves and emotions, high anything is possible.  Keep a close eye on the price action watching for clues of additional selling as traders may choose to go into the long weekend with their cash safely tucked away in the account.  On the other hand, the bulls could attempt a little relief rally in a reaction to the 200-day average on the SPY and DIA.  Long story short prepare for anything ahead of this three-day weekend.

On the Calendar

On this last trading day of Q1, the Economic Calendar has several potential market-moving reports.  At 8:30 am the Jobless Claims consensus is looking for a slight decline of 1000 to a 228k print vs. 229K last reading.  Also at 8:30 AM, forecasters expect the Personal Income and Outlays report to show a 0.4% increase in personal income.  Consumer spending is also expected to rise 0.2% with the closely watched core PCE price index coming in at 0.2% in February and a 1.5% annualized reading.  Consumer Sentiment is at 10:00 AM and expected to remain strong with a 102.0 forecast reading.  There are several other non-market moving reports throughout the day, a Fed Speaker at 1:00 PM, and a couple of bond-related events to close out the quarter.

The Earnings Calander shows 89 companies stepping up to report today.  Make sure you have a plan if you’re holding or considering an entry on stocks that are reporting.

Action Plan

Yesterday indexes experienced some 2-sided choppy price action as the bulls and bears battle around the SPY and DIA 200-day average.  The Dow traded in a chop range of more than 350 points making it a very challenging and frustrating environment for most traders.  Currently, the Dow Futures are pointing to gap up open that but still within yesterday’s choppy range.  With a 3-day weekend ahead don’t be surprised to volumes drop quickly after the morning rush.

Have an awesome extended weekend everyone.  Happy Easter!

Trade Wisely,

Doug

Extreme Volatility

Resistance proved to be too strong yesterday with the bears laying in wait to ambush the morning rally.  Current price action is displaying such extreme volatility even the most adept and experienced day traders find it challenging.  Trying to navigate such volatile price action as a swing trader would only be suitable for those with a very high tolerance for risk.

I have been warning that swing traders have little to no edge when a market becomes so violently emotional.  If your continues to be chopped up, stop trading until the market calms down and your edge returns.  Standing aside during times like this does not make you less of a trader.  In fact, I would argue it makes you the smart CEO of your trading business that recognizes when the risk is just too high.  Remember cash is a position that can serve you well in times as volatile as these.

On the Calendar

There are a total of five reports that come out at 8:30 AM Eastern on this last hump day in March.  Two of the five, GDP and International Trade in Goods could easily move the market while with corporate Profits, Retail Inventories and Wholesale Inventories unlikely to do so.  The GDP number according to consensus is expected to rise slightly to 2.7% annualized vs. the last reading at 2.5%.  Consumer spending should hold steady at a 3.8% rate with the GDP index unchanged at 2.3%.

Consensus suggests the deficit in International Trade will narrow slightly to 74.0 billion vs. December reading of 75.3.  At 10:30 the Pending Home Sales Index is expected to bounce back 3% after posting a sharp 4.7% decline in February’s report.  The EIA Petroleum Status report produced a surprise decline in supplies on the last reading helping to boost oil prices.  It’s 10:30 AM reading today is not forecast forward but does have the potential of moving the market on its release.  We have a Fed Speaker at 11:30 AM, two note auctions and then Farm Prices report at 3:00 PM to close this busy day.

The Earnings Calendar shows 83 companies are expected to report results today as if there is not already enough to keep us on our toes today.

Action Plan

Yesterday I suggested it would be wise not to chase the morning gap and to be careful buying as the market pushed up toward resistance levels.  After a nice morning rally which looked steady and consistent, the market ran headlong into a bear ambush.  At the close, all four of the major indexes closed with bearish candle patterns as high volatility continues to plague the market.

With the Dow, less than 500 points away from its 200-day average it seems the odds would favor the bears testing this important level.  Please exercise caution if you do plan to trade and remember swing traders have very little edge when such volatility exists.

Trade Wisely,

Doug