A wildly bullish Dow gives me pause.

A wildly bullish Dow gives me pause.

wildly bullish DowAs 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.

Dow is trying to lead the market higher.

Lead the market higherWhen 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!

What a difference a day makes!

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. Earnings fueled rally nearing 3-weeks up.

Earnings fueled rally nearing 3-weeks up.

Earnings Fueled RallyThe 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.

Plan for an extra dose of volatility.

VolatilityWith 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

FOMC and Earnings a Volatile Combo

Volatile ComboWe 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?

Will earnings continue to support current valuations?

Current ValuationsThird 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

Taking Profits to the Bank.

Taking Profits to the Bank.

Taking ProfitsAfter posting the first 10-day bull run in two years, I have Taking Profits on mind this Friday.  It has been an amazing run, and it’s very thoughtful of the Bulls to have kept it going to our normal profit taking day, Friday!  With the QQQ’s and the SPY posting a hanging man pattern yesterday I am further encouraged that is time to go the bank.  Please don’t misunderstand; I’m not suggesting the market is going start falling!  I am merely suggesting there are enough clues that I need to take some profits and reduce my long exposure ahead of the weekend.  After all, isn’t consistently profiting the goal of professional trading?  Never let greed prevent you from taking profits on a consistent basis!

On the Calendar

Today we get a very nice rest on the Economic Calendar with only the Baker-Hughes Rig Count at 1:00 PM Eastern.  The Rig Count tracks the number of actively operated oil and gas rigs.  It a relatively benign number and very unlikely to move the market unless it reports a major surprise.  That wraps up the Economic Calendar for this week.

We also get a Friday break on the Earnings Calendar with only 34 companies reporting earnings.  Some the notables are CL, HON, GE, and KSU.  Although important I don’t see any reports that are likely to be big market movers today.

Action Plan

Yesterday we as we DIA product a couple of whipsaws that for a short period looked like the Bears were grabbing control.  The Bulls went to work defending prices and closing the SPY, IWM, and the QQQ’s at new record highs for the first ten-day winning streak since 2015.  As good as is was to see the Bulls step-up and defend we left behind a hanging man pattern on SPY and QQQ.  The pattern is a warning that the Bulls could be running out of fire power but as with many candle patterns, it does require follow-through.  However, it does warrant raising caution levels.

Futures were lower during the night, and currently, they are suggesting a slightly lower open.  After 10-days up it’s not a surprise that some profit taking ahead of the weekend is likely.  The MSFT report was positive on both the top and bottom line, and the stock is currently indication a higher open.  Of course, there is always a chance the price could fall below our short strike at $72.50, but we should expect exercise.  All that means is that we got paid to sell our position at a much higher price.  I will be much more focused on profit taking than new entries today.

Trade Wisely,

Doug

Bullishness or Irrational Exuberance?

Bullishness or Irrational Exuberance?

Irrational ExuberanceThere is a very thin line between a bullish market and irrational exuberance.  After the 9th day of rallying straight up, I’m not predicting irrational bullish behavior, but it would be foolish to think this kind of price action will continue forever.  Good earnings reports could continue to encourage buyers to pile on, and exuberance can continue much longer than anyone would expect.  So what is a responsible trader to do?  Trade with a plan!  It is only with a plan and the discipline to follow it that you can avoid predicting and emotional trading.  HRC and RWO have proved over and over that planning makes the difference in profiting consistently.  If you’re not planning I have to ask, What are you waiting for, an engraved invitation?

On the Calendar

The Thursday Economic Calendar begins with the Weekly Jobless Claims and the Philadelphia Fed Business Outlook Survey at 8:30 AM Eastern.  Labor demand remains very strong, and forecasters see jobless claims falling by 1000 to 246K last week.  Growth in the factory sector has been exceptional in the Philadelphia Fed index. The index came in at 27.6 in June with the July consensus at 22.0. Order readings are at extraordinary levels and points to an overheating at least in the Philly sample.  Leading indicators are at 10:00 AM, and after that, there is a pile of bill and note announcements.

Today is the first big day of the 3rd quarter Earnings Calendar with 128 companies expected to report today.  Some of the notable reports would be EBAY, MSFT, KEY, and V.  Make sure you are checking current holdings and potential new trades for earnings dates as part of your daily planning.

Action Plan

The Bulls showed some incredible strength yesterday stampeding higher with no fear.  The SPY was the strongest of the indexes with buying right into the close and yet another all time record high.  Bullish buyers even lifted the IWM which has lagged behind the rest of the market to new all time record highs.  With the 9th straight day of gains, even the QQQ’s managed a new record high close having sliced through multiple layers of price resistance as if they were never there.

To me, the overall market seems to be displaying irrational bullishness.  That can continue as buyers continue to pile in feeling as if they are missing out.  However blind bullishness can also create some very nasty reversals.  Make sure you are protecting your profits and have a plan on every trade in case the market suddenly turns.  I will likely be more focused on taking profits today and tomorrow than looking for new trades in an over extended rally.  Having said that there are so many great looking charts setting up.  If earnings continue to attract buyers, it is entirely possible this rally can extend even more but if you do trade make sure you entering low-risk trades rather than chasing trades already will within their run higher.

Trade Wisely,

Doug

The Bulls showed strength defending the rally.

The Bulls showed strength defending the rally.

Bulls showed strengthAt the market, I was concerned that the Bears were taking over, but the Bulls showed strength, stepping up and defending the rally.  The SPY and the QQQ’s displayed remarkable strength continuing to move up into the close.  Currently, the bull run is getting a little over baked with eight days up, however, if earnings reports continue to provide the market confidence that can continue.  If we stay objective setting aside personal biases and simply focus on price action, we can identify and follow the directional clues.  Follow don’t predict!

On the Calendar

The hump day Economic Calendar begins with Housing Starts at 8:30 AM.  Last week the housing starts and permits were noticeably weak last month coming in just over a 1 million annualized rate.  Forecasters are expecting a big rebound this month bringing the annualized number up to a rate of 1.170.  At 10:30 we have the EIA Petroleum Status Report that has become heavily watched by traders the last couple years.  Inventories have been falling for several months now, and we need that to continue to stabilize oil pricing.  If we happen to get an increase in supply, we can expect an overall negative reaction by the market.

On the Earnings Calendar, we have 81 companies reporting earnings today.  There are few companies that report before the bell, but the biggest reports will be after the close today with the likes of AXP and QCOM.  Stay on your toes as we ramp up and make sure you check when companies report or suffer the consequences.

Action Plan

After a quick morning plunge, the Bulls went back to work showing they want to defend support levels.  The DIA has the most dramatic move of the day leaving behind a Hammer pattern above price support.  Keep in mind a Hammer requires follow-through.  The SPY managed to squeak out yet another record closing high on its end of day bullish push while IWM remained under price resistance.  The continued strength in the QQQ’s was nice however the rally is nine days old, and a pullback or consolidation could begin at any time.

Futures are currently suggesting a slightly lower open, but there are still some big reports to come, so anything is possible.  We have some fantastic gains in our RWO trades, so the first order of business will be to manage these positions.  I will be looking for new positions today, but once again I will likely give the market 15 to 30 minutes focusing on the price action before making any decisions.

Trade Wisely,

Doug