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

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 3^rd 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