The Bears create technical damage.
Sad
ly the price action concerns that I mentioned yesterday came to fruition as the Bears won the battle at resistance. This time there was significant technical damage was created the in the index charts. It may turn out to be nothing more than another round of market jitters but to ignore it is unwise. The mantra for the last few years has been “Buy the Dip.” However technical damage such as this normally takes at least several weeks to resolve. We can now expect more volatility and challenging price action going forward. Plan accordingly.
On the Calendar
We have a very light Economic Calendar this Friday. At 10:00 AM Eastern we get the latest reading on Consumer Sentiment. Although Consumer Confidence has been running near 20-year highs, Consumer Sentiment has been drifting lower. The consensus is expecting a slight rebound to 94.0 vs. the last reading at 93.4. Shortly after at 10:15 AM we have a Fed Speaker to round out the week.
On the Earnings Calendar we just over ten companies reporting today. One of the biggest today will come from DE that reports before the bell. Retailers EL and FL are also slated to report before the open today. Although earnings season is winding down, it’s very important to make checking earnings report dates on the companies you hold and are thinking of buying. Failing to do so can quickly damage an account.
Action Plan
Raising my caution level based on the price action served me well yesterday as the Bears won the first battle at resistance. Yesterday the DIA broke and closed below the strong uptrend that it has enjoyed for several months. Tremendous technical damage in the SPY was created yesterday breaking down below the prior low and closing well below the 50-day average. The QQQ’s also suffered damage but managed to hold above the last low and the overall up trend closing at the 50-day average. The poor IWM not only made a new low in its current downtrend but also sliced right through the 200-day average as if it was not even there.
With so much technical damage ahead of the weekend I will most likely stand aside today. As you know, I always try to trade with the overall trend. There are now sufficient clues that the up trend may falter, so I will begin putting together a watch-list of down trending stocks. If you happen to be a long only trader, it is now time to curtail your trading activity. Repairing technical damage will normally require several weeks of trading during which time volatility will likely be elevated making it very challenging even for the most experienced traders. Please protect your accounts and realize you don’t have to trade every day to be a profitable trader.
Trade Wisely,
Doug
The Bull/Bear battleground.
The Bulls have been impressive rallying back up to test market highs however they seemed to lose considerable energy near the close. With the futures looking lower this morning the Bears are showing their teeth and willingness to fight. With definitive support and resistance levels on the DIA, SPY, and QQQ’s the Bull/Bear battleground as been established. I suggest staying very focused on price action. Trend and momentum currently favor the Bulls, but last week we saw how quickly that edge could fade away. I am raising my caution levels and will restrict my market activity. No matter which team wins this battle I will be ready to ride their coat tails when price action clues of the winner begin to emerge.
On the Calendar
The Economic Calendar for Thursday begins with the weekly Jobless Claims at 8:30 AM Eastern. Labor continues to hold very strong this year, and forecasters see that continuing with a 240K print today. Also at 8:30 AM is the Philly Fed Business Survey. The July report only showed marginal strength at 19.5 vs. the 17.0 consensus for today. At 9:30 AM we get a reading on Industrial Production which is expected to rise 0.3% with capacity utilization edging up to 76.7%. Other than that we have Fed speakers at 1:00 and 1:45 PM and few non-market-moving reports mixed in for good measure.
There are just over 50 companies reporting earning today, so please stay on your toes checking your holding and those you are considering for new trades. A couple to make a note of are the reports from BABA and WMT which both happen before the bell today.
Action Plan
Before the FOMC Minutes, the market was finally seeing some follow-through buying after the morning futures pump. However, after the report, weakness showed up in the indexes selling off to near the opening prints. The DIA, SPY, and QQQ’s all remained under resistance leaving behind indecisive candle patterns once again opening the door for reversal. Currently, futures are pointing to a slightly lower open that require our attention. If it turns out to only be a rest near the highs, perfect, but if the Bears go to work here then trouble could be just around the corner.
Over all the trend continues to be up but I think it’s wise to raise your caution level as we dance around the market highs. Reversals can happen very quickly near market highs, and although 3 of 4 major indexes are holding up well, IWM is down-trending raising some questions. As a result, I will likely curtail my trading activity slightly and will be prepared to take profits ahead of the weekend.
Trade Wisely,
Doug
Morning gaps but no follow-through action.
So far this week the pros have pumped up the premarket in the futures gapping the market higher. There is nothing wrong with that as long as we see some follow-through buying after the open. However, the last two days have only seen chop after the open making it frustrating and challenging for most traders. I have been warning each day to avoid chasing the gap and getting caught up in morning drama.
With the futures pointing to another gap up today, I will risk sounding like a broken record and repeat the same words of caution. Keep in mind FOMC Minutes come out this afternoon. It would not be a surprise if the market waits for choppy price action before the report. After the minutes are released expect an extra dose of volatility with quick whipsaw action.
On the Calendar
We have three potential market moving reports on the Economic Calendar today. At 8:30 AM Eastern it kicks off with Housing Starts which were weak in both April and May but bounced back in May. Forecasters expect to see another increase today to 1.225 million annualized rate. At 10:30 AM we get the EIA Petroleum Status Report. Last reading broke a downtrend in oil supplies with a surprise build squashing the recovery that had begun in the sector. Let’s cross our fingers and hope for a decline in supplies today helping to support the overall market. The always anticipated FOMC Minutes will come out at 2:00 PM. Normally the market would see light volume and choppy price action ahead of the number, but there is nothing normal about the current market.
On the Earnings Calendar, we have over 40 companies reporting today. Retailers happen to be in focus with TGT reporting before the open today.
Action Plan
Our all or nothing market continues to gap higher at the open, but so far this week, there has been little to no follow through the rest of the day. There is movement in some individual stocks but to have a little luck and be very quick to gain much benefit. Currently, the futures are pointing to yet another gap up, but as now a breakout to new price levels has not occurred. If you find yourself frustrated, you are not alone! With out question, current price action has been very challenging with little to no edge for retail traders.
With another professional gap this morning I am once again forced to wait for clues that real buyers are willing to support current prices of the overall market. The gaps on both Monday and Tuesday were met with chop the rest of the day. Perhaps today will be different but with the FOMC minutes coming out this afternoon could once again create the conditions for more chop after the gap. The trend is up so if I do trade it will be long.
Trade Wisely,
Doug
Will resistance hold or break?
Yesterday’s bullish move looks as if it will be followed by another gap up bring the both SPY, QQQ’s right back to last weeks resistance. The question is, will resistance hold, stopping the Bulls advance or will it break? To say the least, this kind of price action is tough to trade, and what makes it worse it’s dripping with emotion and drama. There is an old saying that, Fortune favors the bold. For some that’s true, but history rarely writes catchy sayings for those that lost their heads during their bold attempts. Keep in mind it’s not necessary to trade every day to be successful. Choose your battles wisely.
On the Calendar
We begin Tuesday with the biggest report of the day on the Economic Calendar at 8:30 AM Eastern. Retail Sales number have disappointed all year but today consensus expectations for today are looking for a 0.3% vs. the 0.2% decline last reading. Also at 8:30 we will hear from the Empire State Mfg. Survey and Import/Export Prices. Consensus for the manufacturing number is to remain steady at 9.8. Import/Export prices are expected to increase by 0.1% vs. the 2% decline last month. At 10:00 AM both Business Inventories and Housing Market Index release results. Forecasters are calling for 0.4% gain in June for Business Inventories and a 65 reading in the Housing Index. The Treasury International Capital number rounds out the day at 4:00 PM.
On the Earning Calendar, there are more than 30 companies reporting today. Retail numbers will be the theme most of this week. Home Depot reported very early this morning beating both the top and bottom line as same store sales increased, but as of now, investors seem unimpressed.
Action Plan
The Bulls made a strong showing yesterday gapping the market higher and managing to hold it above the gap all day. Currently, it would seem the Bulls would like a repeat performance with the Dow futures suggesting another gap up of nearly 50 points. That brings the SPY and the QQQ’s right back up into the congestion zone they were having trouble with as the Dow pushed higher just a week ago. If you’re confused as to what to do, you’re not alone. Price action such of this is very difficult to trade. Traders that step in boldly might get richly rewarded however they may just as easily punished for chasing into price resistance. Tough decisions to be sure.
Over all trends continue to be up so to follow my rules and trade with the direction of the market I will be looking for long trades. However, I will not rush in after another gap. I will wait and watch and enter only if the timing is right and the price action confirms.
Trade Wisely,
Doug
Big gaps, high emotion – A dangerous combo.
The sell off last week spiked the VIX more than 65% suggesting elevated volatility and challenging price action ahead. A Monday morning professional gap up of nearly 100 points only increases trader emotions. For years I made the mistake of getting caught up in the drama of this kind of price action. I would chase it down and chase up thinking I was missing a big opportunity to make money. After years of poor results, I finally wised up and realized that often less is more.
What I mean by that is commonly traders get caught up in the idea if the market is open then they have to be trading. That is just not true! The best traders in the world watch and wait much like a sniper patiently for one shot. I found that if I could avoid the drama, watch, wait and plan I traded less but made a lot more money. My win/loss ratio went way up, and my trading account started to grow rather than the endless Yo-Yoing I had been experiencing. When the markets become volatile, it is easy to over trade and get caught up in the drama. Not every day is a good day to trade if you want to maintain your edge. Always remember sometimes less is more!
On the Calendar
The Economic Calendar decided to extend the weekend by largely taking Monday off. Other than a bill announcement and a couple of bill auctions there is nothing on the calendar today.
Today is the last big earnings day for this quarter with about 220 companies reporting results. Earnings have been a major source of inspiration for the bulls this quarter. I will be interesting to see how the market responds as that energy supply begins to burn out.
Action Plan
As anticipated, the Korean worries prevented the Bulls from mounting a rally on Friday. The good news is that the Bears were also unsure about the weekend and most of them seemed to join the Bulls in taking the day off. Only the QQQ managed to end the day with a respectable defense of the 50-day moving average while the SPY closed below the 50 for the 2nd day in a row. With the threat to the weekend now past the Dow Futures are currently pointing to a huge gap up open of nearly 100 points.
Although the gap up this morning is not that surprising, it’s also something that I don’t want to chase. Keeping in mind the overall price pattern the morning gap up will still be under significant price resistance on the SPY, QQQ, and IWM. Always keep in mind that a gap up the perfect setup for a pop and drop or whipsaw price action. I refuse to chase, so I will be standing aside for 20 to 30 minutes allowing the price action develop. If the Bulls step in supporting the gap with actual buying then and only then will I consider new long positions. Until that time I will carefully manage the positions that I held over the weekend that hopefully will benefit from the bullish open today.
Trade Wisely,
Doug
Will Korean tensions keep the Bulls away?
With such strong sell off it would not be unreasonable to think a bounce is in the cards for today. I would agree however the Korean tensions could make it difficult for the Bulls to buy this dip. I can tell you that see no good reason to add risk going into this weekend and I suspect many will have the same inclination. That’s not saying we can’t or won’t experience a relief rally. I’m only suggesting the possibility exists that it may be a lackluster bounce or that it may not occur all. Trying to predict a bottom is just a futile and dangerous as it is trying to predict the top. Wait for proof in price and then react unemotionally with a well thought out plan.
On the Calendar
The Consumer Price Index tops the Economic Calendar today coming out before the market opens at 8:30 AM eastern time. The consensus is only expecting a gain of only 0.2% with the yearly rate slipping to 1.8 from 1.9 on the last reading. Declines in cell phone services and fundamental prices including housing are the culprits pointed to as the reason growth in this number remains weak. At 9:40 AM and 11:30 AM we have Fed Speakers rounding out the day.
The Earnings Calendar will not begin to lighten up dramatic with just under 70 companies expected to report their results today. At the close yesterday, NVDA topped estimates, but the stock sold off sharply and is indicating a 7% gap down this morning. That will not be helpful to an already weakened QQQs as we head into the weekend.
Action Plan
The follow-through sell-off yesterday created some significant psychological damage in the indexes. The SPY, QQQ’s and IWM have also suffered significant technical damage cutting through the 50-day moving average. Even more damaging is that the SPY broke the uptrend that began in early 2016. The IWM being the weakest of the indexes fell all the way to the 200-day moving average and is currently indicating it will gap below it at the open today.
Adding insult to injury, the futures are again suggesting a small gap down at the open. Normally after a sharp selloff such as this, it is reasonable to expect a bounce in price. However, as we head into the weekend the tensions growing in North Korea, traders may prefer to avoid the risk. I for one will not be looking for new positions today as I view the weekend risk simply too high for my taste. Having already trimmed my portfolio ahead of this sell off I will sleep well this weekend. The market will be open Monday, and there will be plenty of opportunities made available. Of course, I will be closely monitoring the positions I continue to hold and plan to carry through the weekend.
Trade Wisely,
Doug
Rising uncertainty rattles the market.
The strong earnings rally met with some profit taking and risk reduction yesterday. The overall trend is still up, but the rising uncertainty with North Korea as we head toward the weekend has many traders reducing risk. Currently, futures are pointing to a gap down this morning that may threaten price supports at the open. Should they break, we could see a quick move lower as stop loss orders will likely start to trigger in rapid succession. The Bulls have been very strong, but this morning will be one of the first tests of their resolve at price supports. A successful defense by the Bulls could setup some very nice entries assuming you want to add risk ahead of the weekend. Plan carefully.
On the Calendar
As normal the Thursday Economic Calendar starts the market day with the weekly Jobless Claims report at 8:30 AM Eastern. Good claims numbers have continued all year, and forecasters see claims rising just slightly to 241K up from 240K last week. Also at 8:30 AM is the much more important PPI-FD report. The inflation tracking report has been very flat only managing a 0.1% gain overall on the last reading. Forecasters are suggesting only a slightly higher reading this month of 0.2% core minus food and energy. We have a Fed Speaker at 10:00 AM with the Treasury Budget report at 2:00 PM rounding out the day.
The Earnings Calendar is showing more than 225 companies in one of the last big reporting days this quarter. One of the big reports today will be from NVDA after the market closes. It will be very interesting to see how the market responds as this earnings season winds down and North Korean uncertainty ramps up.
Action Plan
Thus far the selloff has been very controlled with fear only rising slightly. At the close of yesterday both the DIA and the SPY held above price supports with the SPY finding enough dip buyers to close near the high of the day. The QQQ’s also found buyers rallying back up after a somewhat spooky gap down at the open. The poor beleaguered IWM gapped down and stayed below its gap all day long even though it did manage a small bounce off the intraday lows. Futures are currently pointing to a substantial gap down as the saber rattling intensified overnight.
Looking through my watch-lists near the end of the day, I found a nice group of very good looking charts. The temptation to buy the dip was very strong, but I stuck to my rules and decided to wait for follow-through price action. Looking at the futures this morning, I can once again thank my trade plan for saving me capital. I will look for new trades today, but with the weekend coming and the looming crisis with North Korea, they will have to be stellar setups for me to take action on them.
Trade Wisely,
Doug
The Bears re-emerged onto the field of battle.
Over the last 2-weeks, the Bulls have dominated the market battle to such an extent it was easy to forget the Bears were even there. Yesterday the Bears re-emerged demonstrating they still have teeth. I hope you were watching and prepared. As of now, this is nothing more than a healthy pullback and the overall uptrend is still in tact however it’s time to raise your caution levels, modify or even restrict your market activity depending on your experience level. Expect additional volatility in the days ahead.
On the Calendar
The hump day Economic Calendar begins with Productivity and Costs at 8:30 AM Eastern. Forecasters see nonfarm productivity rising 0.8% and unit labor costs dipping to 1.3% vs. the first quarter’s point of 2.2%. At 10:00 AM we get the most important number of the day, the EIA Petroleum Status Report. Oil companies continue having trouble finding their footing even though supplies are declining. If we were to get a surprise build in supplies, we could see the market to react negatively. At 1:00 PM we will hear from a Fed Speaker.
We have just short of 350 companies on the Earnings Calendar reporting today. The bell weather DIS reported after the close yesterday beating consensus but disappointing investors after the announcement of pulling their content from NFLX. The company has decided to begin their own streaming service. The stock dropped more than 3% on the news. Their ESPN unit continues to decline muting the companies overall all performance.
Action Plan
After a sharp rally early in the day yesterday day the DIA reached an exhaustion point profit takers gained the upper hand. As the DIA began to tumble, all the indexes started giving back gains as I had feared. The DIA, SPY and QQQ’s left behind shooting star candle patterns. This pattern is considered bearish and carries much more weight when found at price highs. However, like most candle patterns the shooting star requires a price to follow-through to the downside to be truly valid. Currently, the futures are pointing a gap open giving us that follow-through initially but the Bulls may have something to say about that before the day is over.
Saber rattling with North Korea continues to intensify. The market hates uncertainty, and the situation with North Korea certainly raises that bar. Another battle in Congress over the debt ceiling is another matter that easily could add to uncertainty levels depending on the games they play this time around. After such a strong rally these uncertain items could make it challenging for the Bulls to maintain the rally. At a minimum, I would expect a bit more volatility in the days ahead. Fast intraday moves could be possible as we try to sort out the details. Yesterday I reduced my risk and added in some index puts to hedge the possible risk. Please keep in mind that the sky is not falling. A pullback is natural, needed to confirm support levels, and what a healthy market does! At this point, there is no need to panic.
Trade Wisely,
Doug
Nine straight days of record highs in Dow.
Who doesn’t love a strong Bull? Yesterday marked the 9th straight all time record highs in the Dow. The question is how long can this last? Your guess is as good as mine, but we should prepare for the fact it could end at any time. Please understand I am not saying a selloff is about to begin or even suggest bearishness. The overall trend is still up and very strong, and there is nothing in charts right now to suggest that is about to change. I am only warning about the dangers of complacency. When the market is extremely bullish, it’s easy to forget that danger could be lurking just around the corner. Continue to trade long and stay long until something changes but always be prepared with a plan to protect yourself.
On the Calendar
Another very light day on the Economic Calendar today. The only thing of note is the JOLTS report at 10:00 AM Eastern. JOLTS tracks job openings which moved lower on the last reading to 5.666 million. Forecasters for this month expect further declines in job openings for a reading near 5.6 million today. We have a couple of bond auction today but pretty much wraps up the calendar today. Even the Fed Speakers have the day off today opposite every other day this week.
On the Earnings Calendar, there are nearly 400 companies reporting today. DIS is considered a bellwether by many market watchers, so it can be a market moving event when the company reports after the bell today. Lately, the company has seen declines in subscriptions mostly from its ESPN holdings. Estimates have placed an earnings target of $1.57 a share target for them today.
Action Plan
Nine days straight up on the DIA with the last six gapping to new highs that have been thus far defended by the Bulls. How much longer this can continue is anyone’s guess, but we should not be surprised to see a pullback or a consolidation begin at any time. Yesterday the DIA was finally able to inspire the SPY to participate closing at a new record high. The QQQ’s also moved higher yesterday but fell short of breaking out and remains under price resistance. IWM continues to struggle and remains not only under resistance but also under the broken trend. For the first time in over a week, the Dow Futures currently suggesting a flat to slightly lower open today.
I plan to remain slightly cautious this morning and will likely allow 20 to 30 minutes to pass focusing on price action before making any new trade decisions. I will be watching to see if the Bulls will continue to support current levels with additional buying or if profit taking will finally begin. Although I believe the DIA, in the short-term, appears overextended, there is currently nothing in the charts indicating that will change. That fact, however, doesn’t give me the right to be complacent and ignore the possibility that selling could at any time begin. As a result, I must have a plan to protect gains as well as my trading capital to avoid emotional decision making in the heat of the moment.
Trade Wisely,
Doug
Momentum continues to carry the Dow higher.
The rotation into blue chip stocks continues to propel Dow higher. The sheer momentum of the Bulls continues to plow right through the Bears that tried predicting a top. Although this momentum seems unstoppable at the moment, it is a reason to raise your caution levels. If the SPY, QQQ and the IWM were participating in this move, I would be much more comfortable. However, after nine straight days up in the DIA with all the other indexes not going along creates an unnatural imbalance. Stay with the trend because as of now there is nothing to indicate it is over. Focus on the price action because it’s there where we will first see the clues of reversal IF it does come.
On the Calendar
We begin this week with a very light Economic Calendar that slowly ramps up for a few important reports later in the week. Today there are few insignificant reports along with bond auctions and announcements. Then we have Fed Speakers at 11:45 AM Eastern and 1:25 PM to round out the day.
The Earnings Calendar starts off at full speed today with nearly 225 companies reporting results. So, remain alert and keep those seat belts buckled as emotionally charged price action continues. Do yourself a favor and find out when the companies you hold or are thinking of entering report results.
Action Plan
Friday was a light volume choppy day but a push right at the end of the day closed DIA just $0.03 off the high setting another record close. Both the SPY and QQQ’s remain locked in consolidation while the IWM remains bearish below price support and trend. Futures once again are suggesting a gap up open with the DIA leading the way.
It’s amazing how only a few companies in the Dow in have been able to hold up the entire market. This kind of imbalance makes me very nervous and watchful of a reversal. However, betting against this kind of wild bullishness is unwise as there is no telling how long it could continue. With this being the 9th day of the DIA run and the 8th gap up one would naturally think a top is near a begin to bet against it. Momentum such can last much longer they anyone expects and may actually gain energy, squeezing out short traders that tired predicting a top. Thus I will continue looking for long trades, but I will also be willing to quickly capture gains or cut off losses if the price action begins to signal trouble.
Trade Wisely,
Doug
ly the price action concerns that I mentioned yesterday came to fruition as the Bears won the battle at resistance. This time there was significant technical damage was created the in the index charts. It may turn out to be nothing more than another round of market jitters but to ignore it is unwise. The mantra for the last few years has been “Buy the Dip.” However technical damage such as this normally takes at least several weeks to resolve. We can now expect more volatility and challenging price action going forward. Plan accordingly.
