Short Squeeze Rally

An impressive short squeeze rally was triggered yesterday as panic over a potential trade suddenly seemed not so likely.  To protect themselves from additional losses traders that were holding short positions were forced to cover accelerating the rally and squeezing even more out as the day progressed.  A whipsaw of this magnitude clearly demonstrates just how quickly very emotional markets can shift direction.  With the Dow rallying 669 points and this morning futures pointing to a more than a 100 point gap up guard yourself from getting caught up in this quickly shifting drama.

The fear of missing out (FOMO) is a powerful emotion that often efficiently robs traders of their hard-earned capital so quickly it will leave your head spinning.  Focus on the price action of the and remember to hold onto your edge realizing that in just one day markets are now very close to overhead resistance in a bearish overall pattern.  Keep in mind huge intraday point swings are possible so if you trade make sure you have handle the risk.

On the Calendar

The Tuesday Economic Calendar kicks off at 8:55 AM with the Redbook report which is unlikely to move the markets.  At 9:00 AM the Case-Shiller is calling for continued strength in home prices with an adjusted monthly consensus of 0.7% gain and a year-on-year rate seen at 6.2%.   Consumer Confidence is out at 10:00 AM and consensus remains very strong expecting a 131.0 reading in March vs. February’s 130.8 print.  Also at 10:00 AM are two non-market moving reports the Richmond Fed Mfg. Index and the State Street Investor Confidence Index.  Other than that we have a Fed Speaker at 11: 00 AM as well as three bond auctions.

On the Earnings Calendar, I show 69 companies that are expected to report today.

Action Plan

With trade war fears suddenly diminishing yesterday’s market experienced a strong short squeeze forcing many traders to cover short positions to stop growing losses as the market rallied.  This morning Dow Futures are pointing to more than a 100 point gap up at the open as the bulls try to follow through with some buying pressure.  As good as it was to see such a nice relief bounce lets keep in mind that the indexes have significant overhead resistance and technical damage that it has yet to recover.  At the close yesterday, the Dow is more than 950 points below its 50-day average with the SP-500 over 80 points below.  Long story short, there is a lot of work to do even though both the Dow and SP-500 are displaying a possible double bottom pattern.

Be careful chasing morning gaps after such a big one-day-rally keeping in mind that short-term profit taking could occur at any time.  The VIX remains above its 50-day average so continue to expect large intraday price swings, head fakes, and nasty whipsaw price action where the swing trader edge is small, and the potential for risk is high.

Trade Wisely,

Doug

Volatility

Politically induced market volatility can be remarkably violent because of all the emotion whipped up in the press.  It reminds of the Chicken Little nursery rhyme where one minute the press seems to infer the sky is falling and the next minute reporting well, maybe not!  Such seems the case this morning as the trade war spin seems to have reversed over the weekend and cooler heads will likely prevail.  Who would have guessed? LOL.

Sadly it’s the poor retail swing traders that get damaged the most in these violent swings of market emotion.  As I have said several times over the last three months, retail swing traders have little to no edge in such a violently emotional market.  Trading accounts get chopped to pieces, and the traders have their confidence crushed in the turbulence.  Always remember that cash is a position and that you don’t have to trade every day to be successful.  Be patient your edge will return in due time.

On the Calendar

We begin this week on the Economic Calendar with only non-market-moving reports today.  The Chicago Fed Activity Index is at 8:30 AM Eastern with the Dallas Fed Mfg. Survey at 10:30 AM.  We have two Fed Speakers at 12:30 PM and 4:30 PM as well as four bound related events to complete the calendar day.

The Earnings Calendar shows 73 companies report results today.  It’s hard to believe, but Friday marks the end of 2018’s first quarter.  That means second quarter Earnings season is only about three weeks away.

Action Plan

Last week was a rough week for the market as trade war fears brought the bears out in droves.  The DIA and SPY closed at its lowest at its lowest level of the year so far this year.  The SPY closed Friday just below the 200-day average with the DIA missing that mark by only 1.5 points.  The QQQ’s fell more than 2.5% while the IWM dropped just over 2% on the day.

It would seem this morning that the tough talk with China was a move designed to bring them to the table to cut a fair trade deal.  Over the weekend pressure was added to China as a former Obama official said that President Trump’s concerns were valid.  China has already made moves to relieve some of the trade deficit imbalances, and both sides have expressed a willingness to negotiate over the weekend.  As a result, Dow Futures are currently pointing to a 275 to 300 point gap up this morning.  That kind of huge gap will put some serious pressure on short traders that held over the weekend forcing them to cover.  That means the conditions for a short squeeze exist this morning.  Volatility is very high so expect very fast price action with intraday reversals that could easily swing the Dow more than 100 points in just a few minutes.  It may be wild, but at least we will get some sweet relief from last weeks heavy selling.

Trade Wisely,

Doug

Trade war gloom.

As gloomy as the charts may seem just keep in mind that one day the selling will stop and there will be great companies at offered up for a nice discount.  Let’s also keep in mind that the economy is still showing tremendous strength; labor demand, manufacturing growth, and consumer confidence are near record levels.  The selling right now is politically motivated and will eventually pass because there is one thing for certain.  Politicians always want to be reelected, and a compromise will eventually happen so they can ride in on their white horses to save the day.

On the Calendar

We wrap up this week’s Economic Calendar with two important reports.  At 8:30 AM Eastern is the Durable Goods report which according to forecasters will bounce back 1.7% in February.  Capital goods should rise about 0.7%  and remove ex-transportation is expected to show a solid gain of 0.6%.  New Home Sales numbers at 10:00 AM is expected to come in with a strong 620,000 annualized vs. January’s reading of 593,000.  We have Fed Speakers at 10:30 AM and 11:30 followed by the Oil Rig count at 1:00 PM to finish off the calendar week.

On the Earnings Calendar, there are only 24 companies expected to report, and I don’t see any that would be particularly market moving.

Action Plan

The bears hit the ground running yesterday with about a 200 point gap down at the open as a head start.  After fall 500 points there was a brief rally, but tough tariff talk brought the bears back in force closing the day down 724 point in the Dow.  With yesterdays selloff all four of the major averages are now below their 50-day moving averages.  Future markets this morning are only adding to the pain currently pointing to 100 point gap down, but that is an improvement from the overnight lows if you’re looking for a little silver lining.  The SPY only has about 57 points to reach the 200-day average while the Dow would need to drop another 600.  I know no one wants to see that happen but it sure looks like that’s a good possibility.

If your short, congratulations, its time to watch for clues of a relief rally to take some profits.  Those standing aside stay focused on price action, manage your watchlists and prepare.  The selling will eventually end there will be nice discounts prices on good stocks when it does.

Trade Wisely,

Doug

Stop Digging

I have the privilege of working with a lot of traders from all over the world.  A common theme I’ve heard over the last couple months is that many are seeing their accounts chopped to pieces.  I hear things like; Everything that was working last year is now delivering a lot of losses.  What they have failed to recognize is that the market has changed and they have not adapted to the change.  There is an old saying, “if you find yourself in a hole, Stop Digging.”  The market has changed and has become very challenging even for very experienced traders.

If you find that the market is handing you one loss after another, then it’s time to stop digging and reevaluate.  If you have no “edge,” then your likely only providing liquidity to those that have adapted.  Stop, reevaluate, wait for your edge to return or adapt your trading to the current market conditions.  The only alternative is to watch your capital disappear along with your dreams of financial independence.

On the Calendar

The Thursday Economic Calendar is a full-one, but there are only two potential market-moving reports today.  First is the 8:30 AM Jobless Claims that consensus expects to decline 1000 to 225,000 as labor demand continues to be steady and strong.  Secondly, we have the PMI Composite at 9:45 AM which consensus suggests will remain strong at 55.2 with PM Manufacturing at 55.7 and PMI services at 55.7.  Reports today that are not expected to move the market, FHFA Housing Price Index, Consumer Comfort index, Leading Indicators, Natural Gas report, Kansas City Manufacturing Index, Fed Balance Sheet, Money Supply, and 8-bond related events.

The Earnings Calendar shows 84 companies are expected to report earnings today.

Action Plan

When I ran out early yesterday for an eye doctor appointment, the price action was still whippy but leaning slightly toward some hopeful bullishness.  Sadly the bulls were unable to hold on to that bullish sentiment with only the IWM managing to close the day positive.  It would seem jitters over additional tariffs, and the potential of a trade war with China is to blame.  Yesterday I mentioned that the indexes were sitting at the edge of a very big cliff and it wouldn’t take much to push them over the edge.  With the Dow futures pointing to more than a 150 point gap lower this morning, it would appear tariff fears could give us that push.

Remember big morning gaps can often create whipsaws and very fast price action.  Be careful not to chase the gap.  The next visible price support lower on the Dow is still several hundred points away.  If the bulls don’t fight back hard, we could experience another significant selloff today.  Protect your capital.

Trade Wisely,

Doug

What if?

Waiting is never fun.  It allows the mind to wander through all the “What If” scenarios and invites speculation of the unknown.  The financial media will do it’s it part to whip up the emotion with dramatic headline graphics and bumper music that would make Hollywood jealous.  What does all that drama and speculation accomplish?  Nothing but make us emotional.

The “what if” game is endless and unproductive.  We still have to wait for the FOMC decision, and no one knows what that will be until its released.  Will they add additional interest rate increases to the forecast?  We will find out at 2:00 PM Eastern and no amount of talking head conversations will change that.

What we can do as retail traders is prepare.  If you’re very nervous about the announcement, then perhaps your over-trading and need to make some adjustments to your risk.  If you’re new to trading or lack sufficient experience for such events perhaps standing aside is your the best course of action.  Work to make good business decisions without bias or prediction and be prepared to react without emotion.

On the Calendar

A big day on the Economic Calendar on this hump day.  We get started with important reports at 10:00 AM Eastern when Existing Home Sales which consensus expects a slight increase to 5.420 million annualized rate.   At 10:30 AM the Petroleum Status Report which as recently shown a decline in supplies helping to bolster oil stocks ever so slightly.  After that it’s all about the FOMC Announcement at 2:00 PM along with the FOMC Forecasts.  Then at 2:30 PM the newly seated Chairman Powell will have the entire world focused on every word he utters during the Press Conference.

On the Earnings Calendar, there are 56 companies expected to fess up on their quarterly results.

Action Plan

Today the entire financial world will be focused on the FOMC and what our new Fed Chairman will have to say at the press conference.  Based on his introduction speech where Chairman Powell seemed to lean hawkish has the market speculating more interest rate increases in the FOMC forecast.  Interest-sensitive securities have experienced some selling this week in anticipation of this report.  It’s understandable that the market is pensive as we wait for their decision but all the speculation is, and drama is a waste of time.  As retail traders, all we can do is wait for the decision and react once the decision is known.

I’m expecting choppy price action ahead of the 2:00 PM announcement.  However, after the release of the statement and forecast, we can expect very wild price action as the market reacts.  Today is likely too much more volatile than we have recently experienced.  Currently, the futures are pointing to a mixed open.  The spooky thing is that the DIA and the SPY are sitting right on the edge of a very steep cliff.  Any miss step or poorly chosen word could easily push them over the edge.  Let’s hope that’s not the case and instead that Chairman Powell offers a steady hand that prevents a fall.

Trade Wisely,

Doug

Fear

The data breach in FB coupled with the unknown of the coming FOMC decision gave the bears just what they needed to strike fear into the hearts of traders and investors.  Fear is only of those powerful emotions that can quickly create a lot of technical damage and make our jobs as trades that much more difficult.  When we allow fear to creep into our trading, it diminishes our ability to make good trading decisions.  Remember trading is a business, and just like any other business emotional decision making has no place in business.  Emotional trading is like cancer relentlessly eating away your capital.  The good news is this cancer is curable with a simple trading plan with a set of rules designed to protect you from YOU!  If you don’t have a plan, stop trading until you do or continue to watch your capital disappear.  You are the CEO of your business and solely responsible for your results.  The choice is yours.

On the Calendar

The very light Tuesday Economic Calendar biggest highlight is the beginning of the 2-day FOMC meeting.  Other than that we have the Redbook at 8:55 AM and a bond auction at 11:30.  None of which would be expected to move the market.

The Earnings Calendar shows 52 companies are expected to report today.  FDX is the most noteworthy report of the day that releases results after the bell.

Action Plan

Yesterday saw some ugly price action as traders and investors choose to dump positions.  Some point to the selling on FB as the catalyst for the bearish day, but I think jitters ahead of the FOMC interest rate policy announcement is more likely to blame.  Whatever the cause, yesterday delivered serious technical damage to the SPY and DIA charts and spiking the VIX over 20% as fear seemed to overwhelm the market.  The QQQ managed to hold onto its 50-day average but sadly broke some important price supports as well as the current uptrend.  Small caps seemed to fair the best not only bouncing strongly off the IWM 50-day average but also recovering important price support by the close of the day.

As I write this, Futures markets a mixed with a slight bearish bias.  With no major earnings or economic reports this morning the market will have little more than its nervous emotions to chew on today.  If the Bears step in with some, follow-through selling fear could quickly turn into panic.  On the other hand, if the Bulls step up to defend critical price supports, then we have a chance of repairing some of the technical damage created by yesterday’s selling.  With the FOMC announcement on Wednesday afternoon, choppy price action is likely.  Couple that with rising volatility and we have the potential of wide range chop with fast whipsaw price action.  Plan carefully and protect your capital.

Trade Wisely,

Doug

All eyes on the FOMC.

With very little on the Economic Calendar and earnings season finally starting to wind down all eyes will be focused on the FOMC.  In fact, all the attention over the next 3-days will likely focus on just one man.  Jerome Powell, our new Fed Chairman.  The market has obviously expressed considerable anxiety about the prospect of additional interest rate increases.  The big unknown is will the new chairman’s feathers be dovish or hawkish?  The market hates uncertainty and consequently may react emotionally both before and just after the FOMC policy statement.  We could expect some additional wild price action during his first Press Conference as well.  Remember the market and stay irrational much longer than you and I can remain liquid.  Anything is possible so remain flexible and plan carefully for what could turn out to be very bumpy ride.

On the Calendar

To kick off this FOMC week we begin with a Fed Speaker at 9:00 AM from the Atlanta Federal Reserve Bank.  After that, all we have is three bond events to wrap of the day.

On the Earnings Calendar, we have quieted down as well with just 55 companies reporting results today.  However, just because earnings season is winding down, it doesn’t relieve from the responsibility of checking earnings dates against current holdings and stocks we are planning to purchase.

Action Plan

Friday turned out to be a choppy day of price action.  The Dow tried a couple of times to get over the big round number at 25,000 but ultimately failed to hold above it by the close of the day.  The QQQ and the SPY seemed content to chop in a small range but while the IWM bounced slightly to close the day positive.  Sadly, the SPY closed below the 50-day average raising concerns that the Bears could gain the upper hand.

As I write the morning note, the Dow Futures are decidedly bearish and currently pointing to a 130-point gap down at the open.  If the selling pressure persists, we could easily start breakings some key support levels which would encourage even more bears to plie on raising the fears about the overall market.  If there ever was a time that we need the Bull to step up it’s now.  Keep in mind that the FOMC begins its 2-day interest rate policy meeting on Tuesday with their decision released Wednesday afternoon.  The market continues to be hypersensitive about rates, and with a new Fed Chairman at the helm, tensions are high.  I’m expecting some wider ranging chop that could contain some fast price action as we wait for their decision.

Trade Wisely,

Doug

Boring, choppy price action.

Choppy price action days like we saw yesterday can be frustrating and downright boring at times as we watch price grind up and down.  Inexperienced traders just wanting some action often let choppy, boring markets affect their decision making.  When I was a new trader just like most new traders, I just wanted to trade.  Consequently, I made a lot of very bad decisions trying to force trades just because I was bored.  Long story short if the choppy price action persisted very long I would have a huge string of losing trades.  Individually the trades were not big losers but added up the damage to my account was substantial.  If boredom is affecting your decision making, take a break.  It’s amazing how a short break from your screens can help a trader maintain focus and promote good decision making.

On the Calendar

No rest this Friday on the Economic Calendar with four important reports.  Kicking off at 8:30 AM Eastern with the Housing Starts report which is calling for a decline from the 1.326 million annualized in January to 1.285 for February.  Permits according to consensus will decline in February to 1.322 million vs. 1.377 million annualized.  At 9:15 is Industrial Production forecasters expect a 0.4% increase overall with the manufacturing growth increasing 0.4% as well.  The Consumer Sentiment report at 10:00 AM is expected to decline slightly to 98.8 vs. the 99.7 February reading.  Also at 10:00 AM is the JOLTS report is expecting job openings to decline slightly to 5.800 million vs. 5.811 in December.  AT 1:00 PM is the Old Rig count but it very unlikely it will move the market.

On the Earnings Calendar, we have 67 companies expected to report results.

Action Plan

At the open yesterday, futures pointed to a possible bounce, but the bulls lacked the energy to hold onto early gains as trade war fears continue to swirl.  The good news is the DIA held onto supports by the close while the other indexes all help up pretty well.  There is, however, the reason to keep a close eye on the DIA and the SPY because it wouldn’t take much to tip the scales to favor the bears.  So come on bulls sharpen those horns and push.

As I write this, futures markets are flat to every so slightly bullish but remember we have some big reports the market will have to digest before the open.  Also, keep in mind as we head into the weekend that the FOMC meets next week on interest rate policy so don’t be surprised to see some directionless chop in the day ahead.  Have a great weekend.

Trade Wisely,

Doug

Trade War Fears

Fears of a US / China trade war took a major toll on the Dow yesterday as Boeing began to heavily sell-off.  Although the weight of Dow pulled down on the other indexes, the QQQ, SPY, and IWM help up pretty well overall.  Now the question is will there be follow-through selling or will the Bulls dig in and fight.  Fear is a powerful emotion that is often irrational and pure speculation.  Thus, price moves tend to be extreme as fear and quickly lead to full-on panic.

However, yesterday’s selling seemed measured and controlled with  3 of the four indexes holding onto a fragile but current up-trend.  Keep in mind that big moves inspired by fear can also quickly reverse if that fear suddenly passes.  Have a plan, stay focused on price and be prepared for anything but don’t let fear control your trading.

On the Calendar

Thursday is a big day on the Economic Calendar with several potential market-moving reports with four of them dropping at 8:30 AM.  The weekly Jobless Claims is expected to come in at 229,000, continuing to show strong labor demand.  A robust consensus of 23.0 with rising backlogs and the risk of hitting capacity constraints, from the Philly Fed Business Survey.  The Empire Ste Mfg. Survey should come in cooler at 15.0 according to consensus.  Then the Import/Export Prices are seen rising a moderate 0.3% on imports as well as 0.3% increases in export prices.  At 10:00 AM we hear from the Housing Market Index which forecasters see steady strength with an unchanged reading or 72.  To finish off the major reports today, we have the Treasury International Capital at 4:00 PM.

Today marks our last really big earnings day this season with nearly 190 companies expected to report.  While there are earnings spread out for the remainder of the month, they should be overall less impactful as the number of reports diminishes.

Action Plan

Things were looking pretty good yesterday until fear of a trade war with China sent a share of BA sharply lower.  After losing the 25,000 level, the Dow experienced some pretty heavy selling testing the lower boundary of the price wedge pattern.  Although the SPY, QQQ, and IWM experienced some selling pressure, they all managed to close within their current uptrend and stayed above their respective 50-day averages.

I said yesterday that my gut tells me that the market wants to go higher.  Yesterday’s price action while bearish didn’t dissuade that feeling.  With 3 out of 4 indexes holding onto an uptrend, the technicals slightly favor the bulls as long as support levels hold.  However, it wouldn’t take much more selling pressure to shift the battle to the bears so stay focused on price action.  The current pullback has the potential to set-up some great entries if the bulls can tow the line.  Mark up your watchlist and be prepared.

Trade Wisely,

Doug

Who invited the Bears?

Okay, we had a nice little bull party going on; who invited the bears?  It seems everywhere you look we see Bearish Engulfing candles and nasty failure patterns in the charts.  Is it really that bad?  First, let’s remember that Bearish Engulfing candles must follow-through in the next period to confirm.  Without that confirmation, it’s nothing more than a day of profit-taking.  Secondly, let’s step back from the hard right edge and notice that only the DIA has failed to break out into an uptrend.  I pointed out yesterday that the index has moved up so many days in a row that rest or pullback was possible.

Please understand I’m not saying that to try and pat myself on the back for a correct call.  What I’m trying to demonstrate is that if you remove emotion and study the price action, the answers are usually there.  No prediction just simple observation.  So, who invited the bears?  The king of all indicators, Price Action.

On the Calendar

There are some big reports on the hump day Economic Calendar.  At 8:30 AM we have two potential market-moving reports with PPI and Retail Sales.  Consensus suggests the headline will come in up 0.2%.  Remove food and energy, and it is expected to rise 0.2% while trade services move up 0.3%.   According to forecasters, Retail Sales should snap back after declining in January with a 0.4% February expected increase.  Remove autos and gasoline, and they see a 0.4% increase.   Business Inventories at 10:00 AM should see a sizable build of 0.5% in January giving a boost the inventory component of GDP.  Last but not least is the Petroleum Status Report which is on forecast but obviously critical the prices of oils stocks.

On the Earnings Calendar, I see 122 companies stepping up to report quarterly results.  Stay on your toes as this earnings season finally begins to lighten up after this week.

Action Plan

The bears stepped in yesterday producing a slew of reversal patterns on all four major indexes on Tuesday.  At the close Bearish Engulfing candles were left behind on the QQQ, IWM, SPY.  The DIA was also under pressure one again failing at the 50-day average but managed to hold just above the physiological 25,000 level on the Dow index.  It was pretty grim as I looked through my watchlists last night seeing lots of potential topping patterns and blue ice failure patterns all over the place.

One would naturally expect the bears to follow through today with another push lower today, but the premarket futures are indicating a willingness of the bull to fight back.  As I write this, the Dow Futures are pointing to a gap up of about 80 points at the open.  However, with all the early earnings news and important economic reports coming before the open anything is still possible.  Everywhere I look in the charts I see clues of bearishness, but for some reason, my gut is telling me the market wants to go up.  That’s not a prediction; it’s merely a feeling that of course will have to be confirmed by price action.  Price is king and always will be.

Trade Wisely,

Doug