Concerned about DIA over-exuberance?
Are you concerned about DIA over-exuberance? I must admit that I am becoming concerned because all the bigger indexes are not participating. I’m concerned that incredible weight that only a few companies in the Dow are lifting could soon reach a breaking point. Earnings have been driving this move it is entirely possible that it could continue for a while longer. A tough lesson that I learned many years ago is that the market can stay irrational much longer than I can stay solvent trying to bet against it! However, that doesn’t mean that I should be complacent, failing to recognize the market condition or having a plan to protect my profit and trading capital. The sky is not falling, but a storm could be building on the horizon. I’m only suggesting it’s better to have your umbrella with you than having no protection at all.
On the Calendar
Friday’s Economic Calendar begins with the very important Employment Situation report at 8:30 AM Eastern. Employment numbers have been very strong all year, but forecasters expect it will slow this month to 178K down from 222K. They expect the unemployment rate to be 4.3% and the hourly earnings to remain weak at 0.3%. Also at 8:30 is the International Trade numbers which the forecasters see narrowing to 44.4 billion deficit versus 46.5 last month
On the Earnings Calendar, we have about 100 companies reporting earnings today. Next week is another huge week of reports with more than 1200 companies reporting so stay on your toes and expect additional volatility.
Action Plan
Every day this the DIA has managed to not only gap up also set new record high prints doing so. Futures are suggesting we will end the week doing the same, gapping to a new record. Unfortuinatlyy the SPY, QQQ, and the IWM have not participated with this amazing DIA run. Only time will tell how much longer this will last, but I must admit that it makes me very nervous because it is such an abnormal market conditions.
There is no doubt that the trend is still up. However, I’m worried that the DIA tremendous exuberance has set the stage for a huge increase in volatility very soon. The VIX has been signaling complacency for some time and five straight days of the DIA are gaping up with out the bigger indexes participation signals the same. While it is true that earnings reports have been very good, continuing to have the DIA lift that much weight seems unlikely. Please understand that I at not at all bearish on the market. I am merely pointing out that if the DIA begins to roll over don’t be surprised to see some very fast profit taking and a big spike in volatility. I will continue looking for long trades but will be more focused on taking profits ahead of the weekend.
Trade Wisely,
Doug
Bull run continues to produce new records.
As this record setting Bull run continues in the DIA, their tenaciousness has proved very impressive. Setting the sixth new record highs in as many days on the DIA is no small feat. As impressed as I am with the 30 stocks or the Dow holding up the entire market it also raises a concern. Unless the other indexes step up and participate soon, I’m concerned the pressure on the DIA could suddenly break. So come on Bulls get to work in the SPY, QQQ’s and IWM.
On the Calendar
On the Economic Calendar today we start with the weekly Jobless Claims at 8:30 AM Eastern. Claims have been running steady at historic lows, and forecasters see more of the same expecting claims of 244K this week. At 10:00 AM we have Factory Orders, and ISM Non-Mfg Index reports. After back-to-back in May and April consensus expects to see a 2.7% increase in the June numbers on the back of aircraft orders. Nondurable goods are expected to continue flat with weak pricing. ISM is expected to remain strong at 56.9 with both new orders and backlogs staying at consistently elevated levels.
The Earnings Calendar is full to the brim with more than 535 companies expected to report today. With the Employment Situation number coming on Friday morning we would normally see the market quiet and choppy as it waits. However, with such a huge schedule of earnings reports is reasonable to expect more than normal market volatility. Make sure you are aware of the reporting dates of stocks that could affect your portfolio.
Action Plan
After the morning gap the Bears went to work trying to take over, but by the end of the day, the Bulls proved to be too strong closing the DIA at a new record high. Both the SPY and the QQQ’s made significant recoveries from the intraday lows while the small cap index, IWM, continued under selling pressure.
The overall trends clearly remain bullish. As a result, I will continue to look for long trades in stocks trending in the direction of the overall market. With so many earnings reports I will be watchful for an extra dose of volatility today. I will also remain focused on price action. With the weekend coming and after such a strong DIA rally the possibility of very swift whipsaws or reversals exist. Please don’t misunderstand. I am not bearish, suggesting bearishness or even attempting to predict that a selloff is about to begin. I am merely suggesting it’s wise to consider the possibility and watch price action for clues. Preparation is always better than making emotional decisions in the heat of the moment!
Trade Wisely,
Doug
Earnings continue propelling prices higher.
So far 3rd quarter earnings reports have impressed the Bulls and punished Bears that were betting against the rally. The very impressive results from AAPL earnings continue propelling prices higher in the pre-market with yet another gap up open. Stay with the trend but always keep in mind at some point there will be profit taking. Make sure not to get caught up in the hype, drama, and greed. Have a plan to capture gains if and when the Bears show their teeth.
On the Calendar
The Economic Calendar gets going with the ADP Employment Report at 8:15 AM Eastern. ADP seems to have lost its mojo over the last several months missing the actual employment numbers significantly. If this continues and they don’t adjust their metric soon, I suspect it will become a largely ignored report by the market. Currently, the consensus for the Friday number stands at 173K. At 10:00 we get the EIA Petroleum Status Report which has been trending lower and helping to support the price of oil. Let’s hope that trend continues today. After that, we have a two Fed speakers at 11:00 AM and 3:30 PM.
Another very big day on the Earnings Calendar with more than 400 companies reporting. So far earnings have provided the fuel for this impressive market rally, and that looks to continue today after the impressive results from AAPL. Please make sure to check reporting dates of companies that could affect you and your portfolio!
Action Plan
Another day and another record for the DIA gapping up the 2nd day in a row and holding the gap through the close of the day. Very impressive display of bullishness indeed! The QQQ, SPY, and IWM closed the day with muted results, but all in all held up very well considering the overall duration of this current rally. The futures are pointing to another gap up this morning on the back of the AAPL earnings report. The tech rich QQQ’s should see a nice pop above resistance today.
With the market gapping up for the 3rd day in a row I will once again focus closely on the price action for the first 20 to 30 minutes looking for signs that real buyers are supporting price. I will continue to trade with the trend looking for long positions. Because the rally is very extended, I feel the need to focus more on protecting profits and locking in current gains. I am not predicting a profit taking slump in the market. However, I do want to be prepared with a plan if it does occur.
Trade Wisely.
Doug
A wildly bullish Dow gives me pause.
As many of you know, I am always cautious when I see a market gap up to new highs. With the wildly bullish Dow Index gaping to another record high raises caution flags. The muted price action of the QQQ, SPY, and IWM means that only 30 companies are trying to lift the entire load. It is possible, but such a strong gap after major rally could also produce an exhaustion pattern. Make no mistake, the trend is up, and I will stick with the trend, but I will not chase this gap. Chasing a gap after a major rally is a kin to playing Russian roulette with a loaded gun. Avoid emotion with a well thought out plan and have the discipline to follow that plan to protect you from you!
On the Calendar
The Economic Calendar starts August with Personal Income and Outlays at 8:30 AM Eastern. Incomes are expected to increase 0.4%. However, spending has remained muted only rising 0.1%. Consensus for the core PCE is 1.4% yearly which is only a 0.1% increase. PMI Manufacturing Index is at 9:45 AM is expected to come in at a positive but moderate 53.2 reading. A far more important number, ISM MFG index comes out at 10:00 AM. It has been very strong this year, and that will continue if the consensus is correct with the expectation of 56.2 print. Construction Spending is also at 10:00 and is expected to post an increase of 0.5, however, continues to be soft overall this year.
On the Earnings Calendar, there are nearly 280 companies reporting today. The big news of the day comes after the close when AAPL reports earnings. With the recent slide in tech, there are those saying the AAPL report is so important it may overshadow the Employment Situation number on Friday! I’m sure about that but how AAPL reports will likely be critical to market direction.
Action Plan
The Bulls in the DIA managed to hold onto the morning gap but was unable to lift the other indexes. The QQQ closed below support with a dark cloud cover pattern while the SPY held support but just barely. IWM tested resistance early in the day yesterday but bears pushed back down confirming resistance but just holding on to the current trend. So all and all we have 30 companies trying to lift the entire market and making very confusing signals overall.
The Dow futures are wildly bullish this morning suggesting a gap up more than 100 points. The other index futures are also pointing higher but at this time are not reversing the negative candles left yesterday. It’s my inclination to jump to the decision that the DIA this morning is an exhaustion gap which could signal the end of this rally. However, it is always unwise to predict or bet against a strong trend. My plan for today will be closely watching price action for clues of reversal. I will stay with the trend until I have evidence of something different. Watch the potential pop and drop or whipsaw price action this morning and prepare to act if necessary to protect profits and trading capital should a reversal occur.
Trade Wisely,
Doug
Dow is trying to lead the market higher.
When I see the market gapping up to new highs, I always have the possibility of whipsaws or pop and drop price action in mind. When I see the smallest index (Dow) gapping to new record highs trying to lead the market higher, caution flags start waving. It could be a perfectly innocent bullish rally, but it could also be the perfect setup for a reversal. It is so easy to get caught up in the drama of the morning and emotionally chase into the open. If the rally is real, then we will see real buyers stepping up supporting the morning pop. There is no reason to rush! The price action will reveal itself if we quietly watch and patiently wait for the lower risk entry.
On the Calendar
We begin the last trading day in July with the Chicago PMI at 9:45 PM Eastern followed by Pending Home Sales Index at 10:00 AM. The PMI number has been on the rise the last five months reaching a 3-year high in June at 65.7. Consensus expects a pullback to 62.0 this month but still very strong. On the other hand, Pending home sales have fallen for three months in a row. However, the forecasters are calling for a strong 0.9% bounce back on today’s reading. At 10:30 AM is the Dallas Fed MFG Survey is expected to continue to report strong results, but this number is unlikely to move the market.
Today begins a huge week on the Earnings Calendar with nearly 1500 companies reporting. The week kicks off with 135 3rd quarter reports so please check the stocks you own or are thinking of buying.
Action Plan
Thursday and Friday last week did little but make the charts very difficult to read. The DIA remained very strong reaching out for new record highs while the rest of the market tried to recover. Although the SPY, IWM and QQQ’s rallied, they all closed the day below price resistance. Even with the DIA rally, the VIX closed Friday well off of the lows suggesting a little concern may be creeping into the market. This morning the Futures are once again indicating a gap up at the open to new record prints on the DIA.
I am always wary of gap ups to new market highs. They are the perfect setups for whipsaws or pop and drop price action. As a result, I will plan to allow at least 20 to 30 minutes after the market open before considering new positions. I will need to see some actual buying after the professional gap. Of course, the first order of business will be to manage the positions that I held over the weekend. The overall trend of the market is still up so will continue looking for long trades, but I will also prepare for a reversal that could happen at any time. Please understand this is not pessimism or bearishness! It’s simply wise business to prepare.
Trade Wisely,
Doug
What a difference a day makes!
The ugly whipsaw yesterday took the market over confidence to the wood shed and beat it half to death. What a difference a day makes! In my note yesterday I wrote the importance of having a plan for a reversal that could happen at any time. I also mentioned the dangers of over-trading an extended rally. Believe me; I understand how easy it is to get caught up in an extended rally. A mistake I made over and over for years. Being prepared for a possible reversal is not an act of bearishness. It’s simply a responsible and disciplined act of good business practices. We can not predict the time and date of such price action but can prepare a plan on how to deal with it and avoid poor emotional decision making in the heat of battle.
On the Calendar
The last Friday of the July begins with a very importing number on the Economic Calendar. The final estimate of the 2nd quarter GDP releases at 8:30 AM Eastern. Consensus suggests it will come in with a solid 2.6% annualized rate with retail sales leading the way. Keep in mind the GDP number can move the market. Out at the same time is the Employment Cost Index which jumped up 0.8% in in the 1st quarter but the forecasters see that slowing slightly with a reading today expected at 0.6%. Consumer Sentiment is at 10:00 AM and is expected to show continued strength with a reading of 93.1. After that, the only thing of note is a Fed speaker at 1:20 PM this afternoon.
On the Earnings Calendar, there are about 100 companies expected to report today. Stay on your toes and continue to check earnings dates for companies you hold or are thinking of buying.
Action Plan
Yesterdays whipsaw should not have been a surprise to RWO readers. We can never know the date and time when something like this will occur but as I have been saying, prepare, because the possibility exists. Gap up’s to new market highs should always put us on high alert for the possibility of whipsaw price action. The VIX at historic lows only adds to the high alert status.
The whipsaw made a mess of a lot of charts, and I suspect could be a warning of higher volatility days to come. Choppy markets are dangerous and very difficult to trade. It may be wise to curtail trading activity until we get better clues on direction. There is also a mix of signals in the Index charts raising some concern. The DIA managed a full recovery closing at a new record high. However, the SPY and the QQQ closed with ugly bearish engulfing candles although well off the day’s low.
Futures were negative all night but have recovered slightly in the early premarket. Toss in the Senate’s failure on the health care bill, and the AMZN earnings miss and explosive volatility could be the result. Overall the trend continues to be up, but I will not likely seek to add new risk ahead of the weekend with such price action confusion. I will, however, be very focused on managing current positions and taking profits where possible to reduce exposure to the market.
Trade Wisely,
Doug
Earnings fueled rally nearing 3-weeks up.
The current rally has been amazing with new records for the books almost every day on this earnings fueled rally. Hey, who doesn’t love market rally? Right! Profits are easier to make, and the world of the trader just seems to be filled with sunshine and rainbows. It’s often times like this when traders get complacent. Breaking the rules, rushing trades and/or over trading. If we fail to plan carefully, we invite emotion into our trading which normally ends badly. Maintain your discipline, be prepared and protect your capital from emotional decisions with a well thought out plan.
On the Calendar
The Economic Calendar begins with Durable Goods this morning at 8:30 AM Eastern time. Durable goods is a market moving number that has been a little soft with declines in both April and May. Consensus for this month is to see a big bounce back with an expected increase of 3.5% mostly on the back of the aircraft industry. Also at 8:30 AM is the International Trade in Goods number as well as the Weekly Jobless Claims. Trade goods are expected to come in with a 65.0 billion deficit which is an improvement from last month. Labor has been very strong, but there is an expectation of an increase to 240K from the 233K last reading. There are a few nonmarket moving reports, auctions and announcements.
Today is a huge day on the Earnings Calendar with nearly 450 companies expected to report results today. Believe me; it’s in your best interest to check reporting dates before entering new positions. It is equally important to check on reporting dates within your portfolio.
Action Plan
Yesterday the market pretty choppy which is normal on an FOMC announcement day but all in all the indexes held up pretty well. Earnings have already begun to roll in this morning with the majority being positive. Futures are currently reflecting that bullishness pointing to a slightly higher open, but it could shift quickly on the data laden day. As of right now the QQQ’s are showing yet another gap up open and another record level for the history books. The DIA and the SPY are not far behind.
As always my top priority is to manage current positions first and as we begin to wind down this trading week taking profits is also high on my list. I will, however, look for new trades today but much recognize the fact that the rally is nearing the 3-week mark. I’m not predicting a turn but if one did occur it should not be a big surprise so plan your trading accordingly and always have an exit plan.
Trade Wisely,
Doug
Plan for an extra dose of volatility.
With hundreds of earnings reports today and the FOMC announcement, we can likely expect volatility to kick up a notch. Extra volatility should not be feared, but every trader should have a plan in place to deal with it unemotionally. Please, Please, PLEASE make sure you are checking earnings dates on all stocks. As an example take a look at AKAM. AKAM had a beautiful entry signal at the end of the day. I would normally have bought the stock in a hot minute but checking earnings I discovered it was about to report. Thankfully I checked because the stock is gapping down almost 8% this morning! That few seconds likely saved me hundreds of dollars. Defentally worth the effort! With VIX so low there are many traders beginning to speculate the market is overbought. That could be true but trying to predict a top is a very difficult business that normally costs those that do a lot of capital. If you’re concerned about a market top, lock in profits and reduce trading activity. The market will tell us where it wants to go if we just wait and watch rather than predict.
On the Calendar
Hump day on the Economic Calendar begins with New Home Sales at 10:00 AM Eastern. Forecasters see home sales increased slightly to 611k consensus in June. Then at 10:30 AM we will get the EIA Petroleum Status Report. Oil supply levels have been trending lower in the EIA report, and continued reductions are very important to stabilize the commodity prices. Then at 2:00 PM is the all important FOMC Announcement on interest rates. The market is not expecting a rate increase today but keep in mind that all they have to do is change a word or two in their statement to move the market dramatically.
On the Earnings Calendar, there are 275 companies reporting results today. As of now, earnings have pushed the market sharply higher with no fear. Nevertheless, it is extremely important for every trader to find out when the companies they hold are reporting.
Action Plan
Overall we saw the indexes held up pretty well yesterday, but the price action was rather subdued as the market waits to hear from the FOMC. The bullish trend is still is still in place on a daily and the weekly charts. The best practice is to continue trading with the trend.
The trend is still up, so I will continue to look for long trades. However, I will be slow to enter new risk at this point in the rally. Although I have pickup some new trades, I have also been reducing overall risk taking profits on several positions already this week. My inclination is to continue to reduce risk as market extends this rally. Currently, futures are pointing to a small gap up open but keep in mind trading will today will not only be affected by hundreds or earnings reports but also the FOMC announcement.
Trade Wisely,
Doug
FOMC and Earnings a Volatile Combo
We have enjoyed the steady and strong rally, but the road ahead could be a bit bumpy ahead. As earnings reports ramp up and the VIX has fallen to historic lows. Toss in the FOMC, and we have an explosive combination that could trigger significant volatility. Price action is currently very bullish but doesn’t ever think the market is safe and simply can’t go down. Complacency is a very dangerous for traders. Anything can happen. Be prepared at all times. I am always especially focused on price action when futures point to a gap up to new market highs. It’s the perfect setup for a pump and dump by the big boys so don’t chase! Have the discipline to plan carefully and follow the plan. Your success depends on it!
On the Calendar
Today on the Economic Calendar there are three reports that are unlikely to move the market. They are the Housing Price Index, Richmond Fed MFG, and Investor Confidence. The two reports that could move the market is the S&P CoreLogic Case-Shiller HPI at 9:00 AM Eastern and the 10:00 AM Consumer Confidence. The Case-Shiller topped earlier this year and has since moderated. The number is expected to come in at 0.3% with the year-on-year number at 5.8. Consumer Confidence consensus for July is expected to come in at a very strong 117.0. Also, keep in mind that the FOMC meeting today with interest rate announcement at 2:00 PM tomorrow.
On the Earnings Calendar, we have 184 companies reporting today, so it would be prudent to stay on top of reporting dates for the companies you own and are thinking of owning. After the close yesterday, GOOGL seemed to have disappointed the market, and the stock is indicated down 25 points this morning. It will be interesting to see if that affects the QQQs and the very strong rally of late.
Action Plan
Yesterday’s trading started pretty slow and choppy but as the day progressed the Bulls seemed to gain the upper hand finishing the day strong. The DIA tested and so far held price support, SPY held up extremely well, QQQ closed at a new record high, and even the IWM rallied off of support. Consequently, price action continues to suggest bullishness. If earnings reports continue to impress the market, then we should expect more records high closes to come.
Today I will be looking for new positions, but I will also be watchful of whipsaw price action. Futures are suggesting a gap up open. Anytime I see the market gap up to new record highs I’m always watchful of the professional pump and dump creating that whipsaw price action which is very difficult manage. As a result, I will wait 20 to 30 minutes after the market opens focusing on price actions and making sure real buyers are supporting the gap. Please keep in mind the market would normally become soft as we wait for the FOMC. Toss in about 200 earnings report, and we have a potentially volatile combination. It would be wise to prepare for anything.
Trade Wisely,
Doug
Will earnings continue to support current valuations?
Third quarter earnings that began as a small creek will become a rushing river of reports for the next few weeks. Remember it’s not the actual report that matters its how traders and investors react to the report that matters. The market has been very bullish, and now it’s up to companies to prove that their earnings can support the current valuations. Make sure to check reporting dates on everything you hold or are thinking of buying and prepare with a well thought out plan.
On the Calendar
The last full trading week of July will begin with PMI Composite Flash and Existing Home Sales on the Economic Calendar. The PMI number is at 9:45 AM Eastern and is expected to slow for the 53.9 reading in June to around 53.2 in today’s reading. Although slightly slowing anything above a 50 reading demonstrates growth. The service sector continues to as the strongest growth sector. Existing Home Sales came out at 10:00 AM and expected to continue on it modest trajectory higher. However, the consensus number of 5.620 annualized units would show a soft spring in home sales.
There are 76 companies expected to report earnings today and will ramp up to nearly 500 on Thursday. It is vital for every trader to check reporting dates for companies held and those under consideration for purchase. Failure to do so could prove to be a very expensive lesson. Don’t rely on luck!
Action Plan
The Bulls held and defended a key support level in the DIA rallying off the level right into the close of the day. The SPY and QQQ’s remained strong and above supports although closing slightly lower. The IWM that finally broke out last week left behind a possible Evening Star Pattern but maintained just above the key breakout support. Futures were mostly down all evening and as I write this continue to point to a slightly lower open today.
After the impressive rally over the last 2-weeks, it would not be out of the question to see the market rest or even slightly pull back. However, it’s very important that the Bulls continue to defend support levels. Resistance breakouts are great but always remember that support is not support, until it’s tested and buyers step up to the plate and defend the price level. I will be looking for new trades today, but I will need to see some bullish energy in the overall market before doing so. RWO members Banked some nice gains last week. Now the trick is to hold on to those gains. As always be very choosy about the trade you take. Quality is far more important than quantity.
Trade Wisely,
Doug
Are you concerned about DIA over-exuberance? I must admit that I am becoming concerned because all the bigger indexes are not participating. I’m concerned that incredible weight that only a few companies in the Dow are lifting could soon reach a breaking point. Earnings have been driving this move it is entirely possible that it could continue for a while longer. A tough lesson that I learned many years ago is that the market can stay irrational much longer than I can stay solvent trying to bet against it! However, that doesn’t mean that I should be complacent, failing to recognize the market condition or having a plan to protect my profit and trading capital. The sky is not falling, but a storm could be building on the horizon. I’m only suggesting it’s better to have your umbrella with you than having no protection at all.
