Be careful not to chase.

Another day and yet another triple point gap indicated by to the Dow Futures.  Be careful not to chase!  One of the many issues I struggled with as an inexperienced trader was getting caught up in the drama of the market.  I would watch all the financial news with the exaggerated headline graphics and talking heads touting their market greatness and lose all sense of discipline.  Que the dramatic bumper music.  I would see the futures pointing to a big gap up and jump headlong into the shark-infested waters.

After getting my fair share of shark bites and losing more capital than I care to remember if finally learned a few very painful lessons.  Trading plan and trading rules are there to protect you from you.  However, they only work if you learn to ignore the drama and develop the discipline to follow them.  After 13 years of supporting my family as a full-time trader, I can confidently say it’s my discipline to follow my plan that has made me successful.  Are you following your plan or are you allowing the drama of the market control your destiny?

On The Calendar

The last week of February begins with a busy week on the Economic Calendar.  The very important New Home Sales number come out at 10:00 AM Eastern as is expected to weaken but matain its strong rising trend with at print of 600K.  At 8:30 AM is the Chicago Fed National Activity Index and at 10:30 comes the Dallas Fed Mfg. Survey, but neither is expected to move the market.  We round out the today’s calendar with three bond related events.

We also have another busy week on the earnings calendar as this earnings season continues to drag forever.  Today there are over 12o companies expected to report earnings today.  Always be prepared.

Action Plan

On Friday afternoon last week, the price action started to indicate improvement and give the appearance of holding support.  The Dow managed to close above the psychological 25k level as well as hold above the 50-day average.  The SPY also showed bullish strength above the 50-day average, and even the beleaguered IWM managed to close a few ticks above this important average.  The QQQ continued to matain market leadership and closed Friday within striking distance of all-time resistance highs.

Unfortunately, it looks as if this gap-happy market will continue this morning as with the Dow Futures suggestion it will open about 150 points above Friday’s close.  With VIX pulling back to test price support and the 50-day average be careful not to get caught of in morning drama and chasing into the gap.  Keep in mind that price volatility remains high and the big intraday reversals we experienced last week are still possible.  Stick to your plan and stay disciplined to your rules.

Trade Wisely,

Doug

Patience

We have all heard the phrase; Patience is a Virtue.  For the swing trader patience is a difficult but very import skill that each of us must learn to master.  To be successful in this business, we wait for the proper combination of patterns, price action, volume and volatility that provides us with an Edge.  That sweet spot where risk is acceptable and probabilities move in our favor.  Patience is also a test of endurance because the longer we wait, the harder it is to maintain the discipline of being patient.

The fact is traders just want to trade, but if we trade, without an edge, our capital is ripped from our accounts and given back to Mr. Market.  I won’t speak for you, but I think I deserve my capital much more than that Mr. Market.  Consequently, it’s essential that I master the skill of patience and develop endurance to wait for my Edge!  Are you willing to endure the wait or will you turn your capital over to Mr. Market?

On the Calendar

It would seem this Friday on the Economic Calendar is an FOMC speaker day.  At 10:15 AM Rosengren and Dudley speak with Mester at 1:30 PM and Williams ending the day at 3:40 PM.  The Baker-Hughes Rig Count at 1:00 PM is the only economic report today, and it is not expected to move the market.

We also get a break on the Earnings Calendar today with only 56 companies reporting.  The vast majority of the earnings reports occur before-the-bell.

Action Plan

We started the day with some bullish energy, but once again the bears mounted a counter-offensive that left all but one index seeing red.  At one point during the day, the Dow was up more than 300 points but gave nearly half of it back and once again closing below that big round number 25,000. The SPY ended the day in the red, closing below the 50-day average as did the IWM.  Yesterday was the 3^rd attempt in as many days for the SPY and the DIA to break through the 50 but thus far been rejected.  The IWM has experienced the rejection of the 50 SMA, 4-days in a row.  Even the QQQ, the strongest of the four indexes could on hold on to a positive print at the close.

While all that seems pretty bearish, there is a glimmer of bullishness because all four of the indexes are at least for now holding above significant price support levels.  The choppiness of the price action has made trading extremely challenging if on impossible except for the very fast intra-day traders.  By in large earnings reports continue to come in positive as does most of the Economic Reports.  As I write this, the Dow Futures are pointing to a gap up of more than 100 points, adding to the choppy confusion.  What all this means to me as a swing trader is that I have to continue to patiently wait until the intra-day volatility subsides and a discernable edge can be defined.  Long or short doesn’t matter just show me a direction.  Have a great weekend.

Trade Wisely,

Doug

Volatility is High

The bulls and bears are locked in a vicious battle for control.  Volatility is high, price moves are fast, and complete reversals happen in the blink of an eye.  I have suggested several times that the selloff would take weeks if not months to resolve and to guard yourself against being chopped up during such times.  I have continued to suggest caution and be patient.  I suggested if you do trade, then trade smaller than normal positions and be prepared for fast and whippy price action.  As a result, I have received some negative and very critical comments.

I am an unapologetic picky trader because I have learned the hard way that a market such as this can chop an account to pieces.  I’ve been there, done that and allowed the market to take back some or all of my hard earned profits.  I want to remind everyone once again that you don’t have to trade every day to be a successful trader.  Protect your capital.  Trust me on this that good trading will one day return.  The question is will you still have the capital and the confidence to take advantage of it when it does.

On the Calendar

Thursday’s Economic Calendar gets going at 8:30 AM with the Jobless Claims report.  Consensus expects claims to come in unchanged this week at 230,000.   At 11:00 AM is the EIA Petroleum Status report and has no forward-looking forecast but is trending toward rising supplies.  There are three Fed Speakers at 10 AM, 12:10 PM and 3:30 PM to discuss the market sensitive issue of rising interest rates.  We also have several reposts that are very unlikely to move the market such as Consumer Comfort, Leading Indicators, Kansas City Fed Mfg. Index, Fed Balance Sheet and Money Supply.

On the Earnings Calendar, we have more than 250 companies reporting today.

Acton Plan

The bulls seemed to be back in charge yesterday with the Dow rising more than 300 Points after the Fed Minutes were released.  However, the bears suddenly returned and in the market fell more than 450 points from its high.  When the Dow has a point travel of more than 750 points over the course of the day, swing traders struggle.  What seems like a good entry signal can quickly reverse and deliver a painful loss to even the best swing traders.

The SPY, DIA and the IWM are displaying the possibility of a Blue Ice Failure pattern.  Adding confusion is the Futures that continue to flip back and forth delivering daily gaps and often reversing the closing direction.  As I write this, the Dow Futures are pointing to small gap up, but that amounts to more than a 175 point reversal of yesterdays close.  Trading during times like this will rob you of not only capital but also take your confidence.  As a result, I will continue to repeat, that cash is a position and that you don’t have to trade every day to be successful.

Trade Wisely,

Doug

Healthy Price Action

The morning the bears seem to have returned with a vengeance on their mind.  The Dow Futures are pointing to a substantial gap down it will likely punish those that chased into a 6-day rally at resistance.  While many might see this move as a negative, I view it as a sign of healthy price action.  In fact, a pullback after such a strong relief rally could be just what the doctor ordered if the bulls can defend a higher low.

I have said several times that this selloff would likely take several weeks to resolve itself.  If the bull can hold a higher low or develop a level of consolidation our swing trading Edge is likely to return.  However it the bears gain the upper hand watch for a retest of the February lows.  I know this is a biased statement, but I think the economic data and the strong earnings results will support the bulls.  However, as always I will not try and predict I will patiently watch and wait for proof in the price action that buyers have regained control.

On the Calendar

We begin this four-day trading week with a very light Economic Calendar this Tuesday.  Between 11:30 AM and 1:00 PM there are 4-bond auctions which both begins and ends the economic calendar today.

On the Earnings Calendar, we have more than 160 companies reporting results.  The first quarter earnings season seems to spread out forever.  This year we will well into March before it draws to a close.  Checking earnings against current holdings or companies, you plan to buy is a daily habit a trader should build into each day as part of your preparation.

Action Plan

Thursday and Friday left behind cautionary candle patterns in the DIA, SPY and the QQQ.  The hanging man pattern and the shooting star pattern near the 50-day average on the DIA and SPY are the most concerning.  A failure at or near the 50-day average would raise concerns of a possible retest of February lows.  However, if the bulls can manage a hold a higher low or build a level of consolidation, it could finally calm the market volatility and bring back a swing traders edge.

Today the Dow Futures are pointing to about a 200 point gap down which will create a significant fear and once again elevate intra-day volatility.  Expect some very fast price action today with the possibility of nasty whipsaw price action.  The 25,000 level of the Dow is a very importing psychological level for the market.  I suspect that will be an important battleground between the bulls and the bears.  Be very careful not to get caught in the crossfire.

Trade Wisley,

Doug

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