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

Slow yet constructive price action.

Slow yet constructive price action.

constructive price actionThe market was a bit slow yesterday, but I saw as very constructive price action.  While it’s true the indexes chopped in a rather small range yesterday, it seemed only to be resting after the rally.  Perhaps both the Bulls and Bears are just pausing ahead of big earnings reports to give them some directional inspiration.  Whatever the case may be, it is our job as traders, to maintain discipline.  Avoid the emotional drama of the season.  Focus on the price action react by following it rather than trying to predict it.

On the Calendar

Tuesdays Economic Calendar has three importing reports, but they are unlikely to move the market unless they come in with a big surprise.  At 8:30 AM Eastern we have Import Export Prices.  Follow by the Housing Market Index and Treasury International Capital at 10:00 AM and 4:00 PM respectively.  Import Export number is expected to decline by 0.2% in largely on the back of low energy prices.  The future housing sales expectations are expected to remain strong.  Forecasters see it ticking higher this month from 67 to 68 on the Housing Market Index.  The Treasury International Capital number tracks foreign demand for Long-Term Us securities.  It normally fluctuates with the strength of the U.S Dollar.

On the Earnings Calendar, we have 45 companies reporting today.  Noteworthy reports will form GS, BAC, JNJ, and PGR before the market opens.  IBM which has been under a lot of selling pressure since Buffett lost confidence in the company reports after the bell today.

Action Plan

Although yesterday was a pretty slow day with the market taking a bit of rest, it was still very constructive day.  Price action was somewhat choppy, but Bulls maintained their position of control.  The QQQ’s is the only index showing stress leaving behind a Shooting Star Pattern right a price resistance.  IWM once again threatened a breakout pushing hard against resistance, but once again it proved to be too strong preventing a breakout.

As I write this, futures are slightly higher, but the direction of the market will be directly impacted by big earnings reports this morning.  The truth is anything is possible, so it’s important to remain flexible and set aside personal biases.  Don’t predict just follow the price action as it presents itself.  There are a lot of good charts showing bullish setups this morning.  However, I want to avoid the drama of the open and will likely allow 15 to 30 minutes of price action to occur before making any new trade decisions today.

Trade Wisely,

Doug

The Bulls chalk up two more record highs.

The Bulls chalk up two more record highs.

Record HighsLast Friday a stampede of Bulls managed two more record highs to add their impressive collection of records this year.  As great as that is, please keep in mind both the DIA and the SPY must still prove that the broken resistance will serve as support if tested.  I suspect as 3rd quarter earnings ramp up there will more volatility in price action ahead, both bullish and bearish.  With the VIX only pennies away from new record lows it would be wise to remember very fast price reversals are not out of the question.  Every trade needs a plan that includes exit strategy before entering new positions.

On the Calendar

Other than some bond settlements. Announcements and auctions there is only one report of significance on the Economic Calendar today.  The Empire State Mfg Survey comes out at 8:30 AM Eastern Time.  Last month the number came in very strong with a reading of 19.8 indicating confidence in manufacturing growth for the next six months.  Forecaster saw this was an anomaly and expect the number to come in around 15.0 for July, which is still very strong.

There are 24 companies reporting today with the biggest name being YHOO coming after the bell.  With the recent weakness in the NASDAQ, I would expect the YHOO report heavily focused on by the market.  It could be an interesting one to watch at the end of the day.  Please make sure you are checking earnings report date on everything you own and everything you buy as part of your trade planning.

Action Plan

Friday was a very good day for the Bulls.  Not only did they manage to push the DIA into new record high territory but managed to break resistance on the SPY setting yet another record.  The IWM tested resistance but shrank away from it before the close, and the QQQ’s managed it’s 6th day up to challenge resistance levels.

Currently, futures are pointing to a higher to a slightly open this morning.  It would be nice to see the market continue on the bull run but after such a strong day on Friday, a rest or slight pullback would not be out of the question as well.  With that in mind, I will be looking for new long trades today.  However, I will likely give the market about 30 minutes after the open before making any decisions.  Of course, as always, the first order of business will be to manage current positions.

Trade Wisely,

Doug

Third Quarter Earnings craziness begins today!

Third Quarter Earnings craziness begins today!

Third Quarter EarningsWith the beginning of the third quarter earnings today I’m hopeful we will finally shake lose from the choppy range bound price action of late.  Please, please make a habit of checking current holdings and possible new trades for earnings reports.  Getting caught by surprise is not acceptable for professional traders.  I think this round of earnings will be very important.  We have had an amazingly bullish market since the presidential election.  It will now be up to the companies to prove with their results that current high prices of the market are justified by earnings results.  Stay on your toes there are likely volatile days ahead.

On the Calendar

We kick off the Calendar with big reports this Friday morning.  First the Consumer Price Index at 8:30 AM Eastern followed immediately by the Retail Sales report.  Shortly after at 9:15 is the Industrial Production report.  We have a Fed Speaker at 9:30 than the less important Business Inventories and Consumer Sentiment report.  Consensus expects a 0.1% gain in the CPI, Retail Sales a weak 0.1% gain and a solid showing in Industrial Production of 0.2% increase.  The Business Inventories are expected to grow 0.3% while Consumer Sentiment should remain but strong but decline slightly.

We get a running start on the 3rd quarter Earnings Calendar today with reports from C and JPM before the bell.  How the big bank’s report will likely have a major effect on how the market open today.  Over all, there are 14 companies reporting earnings today.

Action Plan

Yesterday price action was just what the doctor ordered with the Bulls stepping up to the plate and following through on Wednesday’s strong performance.  Although the price action was bullish, the SPY, IWM and QQQ’s continue to overhead resistance yet to deal with so don’t sound the All Clear signal just yet.

With so much big data coming out before the market opening today anything is possible, so we will have to think on our feet.  Currently, the futures are flat as the market waits for the deluge of news.  As a result, I will need to remain flexible and closely focus on the price action at the open before making decisions on new positions.  Of course, the first order of business is to manage current positions.  Friday, as you know, is normally the day I look to bank some profits rather than entering new trades.  However, with the overall market showing signs of shaking off the range bound chop, I will not rule out new trades today.

Trade Wisely,

Doug

Bullish price action is very important today.

Bullish price action is very important today.

Bullish Price ActionYesterday the Bulls came out to play, but they left behind a price action gap that requires a defensive plan today.  The one day pop was fantastic with many of us banking some tasty profits yesterday.  However, if the Bulls fail to defend the gap, I fear the confidence felt by the market yesterday will quickly erode.  So get out your pom-poms and cheer for the Bulls.  If we see the index prices slip into the gap prepared for the possibility of a quick selloff to fill the gap.  Keep in mind that as good as yesterday was the SPY, QQQ’s and IWM are still under resistance levels that have proved to be difficult to breach.

On the Calendar

Thursdays Economic Calendar begins with the weekly Jobless Claims at 8:30 AM Eastern followed directly by the PPI numbers.  Labor demand remains strong, and the jobless numbers are expected to continue that trend with forecasters expecting a 246k print this week.  PPI, on the other hand, has remained rather soft coming in a 0.3% in May with consensus expecting only 0.2% in June.  A great number in regards to inflation but not so much for the Labor force wages that continue to be flat.  At 9:30 AM round two with Janet Yellen begins before the Banking Committee in Washington.  Whatever she said yesterday seemed to inspire the Bulls, so let’s hope sentiment remains the same today.

On the Earnings Calendar, we have 22 companies expected to report today.  Among them is Delta Airlines which I am curious to see because of the sharp rise we have seen in airline stocks this quarter. DAL reports before the bell today.

Action Plan

The Bulls came out to play yesterday and stuck by enthusiasm all day.  The SPY and the QQQ’s faired the best holding up well the entire day.  The Bears were at work on the IWM and the DIA as we headed into the close but all in all the Bulls held their ground pretty darn well.  Because we left a price gap behind it will be very important that the Bulls keep up their efforts following through today.  Currently, futures are pointing to a higher open, but we will need to see how buyers react after the open.  A pullback that fills the gap I believe would damage confidence in this rally reinforcing the resistance levels.  So get-R-done Bulls!

All of our RWO positions did well yesterday and taking a one day gain +20% gain on BABA was a nice bonus.  I wish we didn’t have to, but I think think it’s prudent to that we take profits in C today ahead of the Friday earnings.  This trade performed very well, but there is just not enough cushion in the profits to safely hold through the earnings report.  So, l will be taking the 20% gain in C today and suggest member do the same.

Trade Wisley,

Doug

Price resistance holds strong.

Price resistance holds strong.

Price resistanceThe Bulls tried once again to break through price resistance yesterday day but once again did not have quite enough energy to do so.  The newly driven whipsaw left behind nice hammer patterns but it’s important to remember that that placement of this pattern is very important.  A hammer pattern at support is important.  The same pattern is drawn in a light volume rally that remains under resistance, not so much.  If fact some might call it a hanging man pattern at price resistance.  With the futures pointing to a gap up this morning, please keep in mind this is the perfect setup for a pump and dump whip whipsaw.  Don’t allow the emotion whipped up in the premarket to influence your trading decisions.

On the Calendar

Today Economic Calendar is dedicated to Janet Yellen.  The Fed Chair will deliver her opening statement in front fo the House Financial Committee at 8:30 AM Eastern.  She will then follow that up with the semiannual monetary policy testimony at 10:00 AM.  At 10:30 AM today we get the EIA Petroleum Status Report which last time showed a nice decline in supplies and helping oil companies find some support.  Today lets hope this trend continues.  At 2:00 PM is the Beige Book which may shed light on next FOMC action with the compiled data that influences their decision.  Lastly at 2:15 PM we have another Fed speaker to round out the day.

There are 21 companies reporting earnings today as we slowly ramp up 3rd quarter reports.  Please remember to make checking report dates part of your morning preparation.

Action Plan

Yesterday saw another day of choppy price action with a news-driven whipsaw tossed in for good measure.  Unfortunately, the overall technical picture of the charts really didn’t change.  Resistance continues to be stronger than the will of the Bulls thus far.  The DIA remains the strongest of the indexes and the one most likely to lead the market higher if only it could break out.  Currently, futures are pointing to a higher open but keep in mind the market will hang on each utterance from Janet Yellen’s mouth today.  Be prepared for the possibility of whippy price action.

Flipping through the charts last night, I found a lot of possible setups for both long and short trades.  Personally, I remain bullish on the overall market but the fact all the indexes remain under resistance levels leaves a reason for concern.  With futures pointing to gap up into resistance I have to consider the possibility of a pump and dump.  As a result, I will give the market at least 30 minutes after the open before considering new trades just to make sure the bullishness attracts real buyers.

Trade Wisely,

Doug

Price Resistance proves stronger than the Bulls.

Price Resistance proves stronger than the Bulls.

The Bulls stayed in control yesterday, but resistance levels proved to be stronger.  It seems a lot of the Bulls decided to avoid the summer heat and hung out in the barn as volume was very low yesterday.  Price action was understandably choppy as a result.  Technically speaking nothing changed yesterday.  Indexes remain under price resistance, and light volume rallies don’t inspire much confidence.

Boredom is dangerous for most traders.  Rather than just sit and watch as we break discipline and trade just to have something to do.  Allways keep in mind that you are the CEO of your trading business and it’s your job to maintain the discipline and stick to your plan.

On the Calendar

Tuesday’s Economic Calendar begins with the JOLTS numbers at 10:00 AM Eastern.  This month job openings are expected to slip slightly lower to 5.975 million.  Lately, openings have been running about 1 million above totals for hiring.  Wholesale Trade is also at 10:00 AM but is normally a non-market moving number.  We have Fed speakers at 12:30 PM and 1:20 PM to round out calendar today.

On the Earnings Calendar, we have 17 companies expected to report earnings today.  One to keep an eye on is PEP as the consumer defensive stocks have been showing signs of strength of late.  If you are not already in the habit of checking earning reports before entering new trades now would be a good time to start.  Next week we will begin ramping up with 100’s of reports daily.  Not knowing can cost you a lot of money.

Action Plan

Yesterday saw the Bulls matain control but sadly lacked the energy to break overhead resistance levels. Futures are currently pointing to a flat to slightly lower open this morning.  The overall market seems to lack inspiration and is simply marking time with choppy low volume price action.  With both economic and earnings news continuing to be on the light side we may have to wait a little longer for that inspiration to appear.

I will be looking for new bullish trades today, but as we approach resistance levels, I must also keep my mind open for bearish positions if failure patterns begin to show up in the charts.  The market itself is in a slow, plodding mood, so there is no need to rush into new trades.  Even the best fo the best setups are having difficulty performing in this environment.  Stay disciplined and always remember that cash is a position.

Trade Wisely,

Doug

Friday’ relief rally requires follow-through.

Friday’ relief rally requires follow-through.

Follow-ThroughIt was nice to have a relief rally Friday taking some of the pressure off the market.  However, that is all that it turned out to be because the Bulls lacked the energy to break resistance levels.  I think it is entirely possible that was we saw and Friday was nothing more than a short covering rally short traders captured gains before the weekend.  So today I need to see some follow-through by the Bulls and some proof they are truly there to support price.

Discipline to follow your rules and stick with your plan is very important in this market.  Years ago I would allow times like this to chop my account to pieces trying to trade without a plan and a good set of rule to protect me.  Not only would I see my hard earned capital disappear, but my confidence as a trader would evaporate as well.  I call it Yo-Yo trading and it nearly destroyed me.  Today as a confident and consistently profitable trader I can tell you it’s the plan and the discipline to follow rules that make the difference.  Having a plan and profit or fail to plan and suffer the consequences.  It’s all up to you!

On the Calendar

A light day on the Economic Calendar for this first full week of trading in July.  We have a couple of insignificant economic reports a few bond auctions and a Fed speaker after 11 PM Eastern.  The Earnings Calendar only has 11 companies that are reporting today.  I would not expect any of the earnings reports today to be market moving.

Action Plan

As always my priority will be to manage the positions that I currently hold.  After that, I will be looking for new trades and refining my watchlists.  I will also look for possible short trades particularly if the failure patterns begin to emerge on the index charts near price resistance.  With earnings just around the corner, we could see light volume and choppy price action all week.  Plan accordingly.

Trade Wisely,

Doug

Average Hourly Earnings In Focus

Average Hourly Earnings In Focus

Average Hourly EarningsThe Employment Situation report is always very important to the market, but today I think the focus will be on the Average Hourly Earnings.  With three of the four major indexes closing below their 50-day averages this largely ignored number is likely to set the direction of the market today.  I have been warning of caution for so long it’s become tiring, but my caution has paid by protecting my capital.  Sadly I must continue to say caution is warranted.  I think a relief rally is near, but that is not a signal of bullishness.  We must keep in mind the index’s now must deal with overhead resistance.  A rally could prove to be the time to sell not a time to buy.  Also, remember with the VIX moving higher the possibility of very fast reversals increases so the traders must be prepared for anything.

On the Calendar

Today we get one of the most important reports on the Economic Calendar, the Employment Situation.  Most of the time the market is laser focused on the Jobs creation number.  However, with the unemployment rate expected to hold at 4.3% (considered as full employment) focus has turned to wage growth.  If the U.S. consumer-based economy is to grow then, consumers need to have the ability to spend more.  Wage growth has been lagging behind for years, and the market wants to see that change.  Consensus suggests the average hourly earnings will improve from 2.5 to 2.6 this month.  A reading of anything above 2.6 I believe the market will see as very bullish.  If the number disappoints, I think we should expect Bears to gain strength.

Wage growth also signals rising inflation which in turn increases the likelihood that the FOMC will react raising interest rates.  The true double edged sword!  There is only one company, GRIF on the Earnings Calendar today which is obviously not a market moving event.

Action Plan

Yesterday we witnessed some hungry Bears pushing all the major indexes lower.   The DIA chart now has the appearance of a double top forming while still clinging to a price support and above the 50SMA.  That’s the good news!  The bad news is that the SPY, IWM, and the QQQ closed the day below their 50-day averages.  The VIX is showing that some fear created into the market yesterday while T2122 suggests we could be nearing a market bounce.  So which way will it go?

I think the tie breaker today will be in the average hourly number at 8:30 AM Eastern.  A number of 2.6 or better and I’m guessing we will see the market gap up.  If the number comes in below 2.5, I think a gap down is likely.  With that in mind, I will be keenly interested in how the market reacts to the Employment Situation report.  Personally, I favor a nice relief rally, but oddly my phone isn’t ringing with the market asking for my opinion.  Friday is normally not a day for me to consider buying new positions but if the opportunity arises, I will be prepared to do so.

Trade Wisely,

Doug