Average Hourly Earnings In Focus
The 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
Uncertainty continues to plague the market.
The choppy price action and violent reversals continue to plague the market. Emotional uncertainty seems to be the best way to describe current price action. As a result, many charts are displaying technical damage, raising the concern of a market top. Geopolitical events are also raising uncertainty levels adding additional risk to every trade. This morning the futures are pointing to a gap down which will break some important support levels. Those that were determined to trade yesterday will most likely see an unhappy result in their account this morning. Not every day is a good day to trade! Sometimes the best decision is just to stand aside and watch.
On The Calendar
We have a busy morning on the Economic Calendar today. We get it going with the ADP Employment Report at 8:15 AM Eastern and quickly followed by International Trade and Jobless Claims at 8:30. The ADP number missed the mark last month over shooting by 106K! For June their guess for 180K jobs created. The International Trade gap is expected to narrow slightly to 46.2 billion from the 47.6 reading last month. Labor demand is expected to remain very strong with and expectation of 244K jobless claims which is unchanged from last week.
At 10:00 we get the latest reading on the ISM Non-Mfg Index which forecasters see coming in at 56.5 versus May’s 56.9 print. All eyes will be on the 11:00 EIA Petroleum Status Report which has been trending slightly lower. However, supplies have remained so strong oil prices have continued to struggle, and that is not expected to change much today. We have 1 Fed Speaker during market hours at 10:00 AM and then after the close today at 7:30 PM
We have 13 companies expected to report on the Earnings Calendar today. I would not expect any of the companies reporting to market-moving or particularly noteworthy.
Action Plan
Yesterday turned out about as expected yesterday with light volume and choppy price action. Technically speaking nothing changed in the charts. During the live session yesterday I gave my case caution looking over the four major indexes. Unfortuniantully, it would seem my concern is showing up in this morning’s futures currently suggesting a gap down at the open. Saber rattling with the North Korean dictator has intensified raising the level of uncertainty for the market. Also, keep in mind that the big Employment Situation report is tomorrow morning. Often the market is very choppy before this report so doesn’t be surprised to see another day of poor price action.
My overall plan remains the same. Manage current positions and continue refining my shopping list of potential trades. If I do trade, I will plan smaller than normal positions due to the price action risk of the market. Always remember Cash is a Positon.
Trade Wisely,
Doug
Messy Contradictory Price Action Signals.
We are the middle of a big of a technical mess when it comes to the index charts. The DIA’s trying to make new highs at the same time the QQQ’s are trying to make new lows. As the SPY remains stuck below resistance, the IWM is showing strength. It is my opinion that contradictory price action signals such as this make the market a very very dangerous place for swing traders. The whippy price action and quick reversals are more suited for swift day traders. If you decide to trade, then prepare for anything. I suggest smaller than normal positions because stop outs will be commonplace and Emotions will likely run high.
On the Calendar
Today we start off with the Factory Orders on the Economic Calendar at 10:00 AM Eastern. Orders are expecting to see their second decline in a row with durables just down slightly, and nondurables such as energy remain weak. We must wait until 2:00 PM for the next report which is the FOMC minutes. It’s unlikely we will learn anything new from the minutes, but the market is typically choppy and tentative ahead of the number.
On the Earnings Calendar, there are 19 companies expecting to report earnings. One, in particular, YUMC, has had a lot of member interest lately so make sure you have a plan if you’re holding it as it reports after the close.
Action Plan
Monday the DIA tried to lead a full-on breakout reversing last Thursday’s selloff. Those that chased in were likely disappointed to see it whip back down before the close wiping out more than half of the day’s gains. The SPY also attempted an early rally but left behind a black candle below price resistance. The QQQ once again gave up support testing the lows of last Thursday and closing almost at the low of the day. IWM, on the other hand, managed to hold above support putting in a bullish morning star pattern.
Talk about a mixed bag of signals and technical mess to try and decipher in the charts. All of the whippy price action and contradictory directional signals is a head game I’m pretty sure I don’t want to play. Coming back after a mid-week holiday I think we could see lighter than normal volumes as may trader will likely extend vacations through to next week. Toss in the FOMC, and you have the formula for a perfect mess that could prove to be very dangerous. I think I will continue to stand aside as far as new positions until some of this mess gets cleaned up and a direction established. I will be looking for new trades, building shopping lists and refining them but it will take a nearly perfect setup for me willing dive into this emotional quagmire.
Trade Wisely,
Doug
Beware Price Gaps Below Resistance.
It is always wise to beware price gaps. When they occur below resistance levels after a significant selloff, I want to focus on the price action and avoid the emotion a gap can create. The fact that the market closes early today and will likely lack volume makes we want to avoid it all together. Do as you like, but as for me, I will be standing aside. NYSE closes at 1 PM today, and Tuesday the market is closed so plan accordingly.
On the Calendar
The Economic Calendar begins the first trading day in July with the PMI Manufacturing numbers at 9:45 AM Eastern. Last month PMI slowed to 52.1, and consensus suggests it will remain steady for June. At 10:00 AM we get the most important report of the day, the ISM Manufacturing Index. Earlier this year ISM peaked at 57, but forecasters are calling for a 55.1 print in June which is a slight improvement over May. Construction Spending is also at 10:00 AM today which is expected to show improvement with a 0.5% gain.
There are nine companies expected to report earnings today. I don’t expect any of them to be market-moving reports. Keep in mind that today marks the first trading day of the 3rd quarter. That means we will soon be right back into earnings season. Make it a habit of checking for earnings reports on every position you are in and every new trade you are considering. Failing to do so can be a costly mistake.
Action Plan
Friday saw nice relief rally, but by the end of the trading day much it was given back with a quick move lower. As expected, most of the day saw very choppy price action. Futures are currently pointing sharply higher suggesting a gap of nearly 70 points at the moment. Let’s keep in mind that today is only a partial day of trading. The big gap open will most likely meet with light volume trading after the morning rush. It would also be wise to notice that all the major indexes will still be below resistance levels.
As for me, I plan to do no trading at all. If I were planning to add risk today, there is not a chance that I would chase the gap up open. I would give it at least 30 minutes trading and make sure that real buyers step in to support the gap. Remember gap up opens into resistance levels are subject to whipsaw price action. Chase in and you could find yourself buying at the highest price of the day entire day.
Trade Wisely,
Doug
High Volatility and Challenging Summer Trading Likely Lies Ahead
Yesterday likely marked the beginning of challenging summer trading with high volatility tossed in for goo measure. As a general, rule summer markets are difficult to trade with lots of choppy price action. As it turns out, summer seems to have come late this year dispelling the old saying, sell in May and stay away. The other challenge we could face is that the market may be a significant market high. A correction that many would say is way overdue. Let’s avoid all the predicting and just focus on price action because the clues will be there if we are unbiased. Also, remember that a market pullback is not a personal attack on you so don’t fight it. Think of a correction as a Mega Sale at your favorite store where we could get the chance of getting much better deals on quality products.
On the Calendar
The last trading day in June the Economic Calendar only has three items of concern. We start off at 8:30 AM Eastern with the biggest number of the day, Personal Income, and Outlays. The consumer is expected to slow down in May as is the personal income however consensus suggests that food and energy will rise. Thus, the overall number is expected to come in unchanged at 1.5%. At 9:45 we get a reading on the Chicago PMI which has been steadily increasing the last four months to 59.4 but the forecast for today indicates a pullback to 58.2. Last but not least we get a reading on Consumer Sentiment at 10:00 AM which fell back 2.6 points in May to 94.5. Consensus suggests it will hold stable at that number for June.
The Earnings Calendar is giving us a break today with only two companies reporting, EROS and OSN. A big winner after the bell yesterday was NKE. It will be nice if this old friend of mine gets back in a trend because it has proved to be an excellent money maker in the past.
Action Plan
Yesterday was an ugly day for the market breaking support levels and creating significant technical damage to the index charts. The end of day rally was a sweet relief and with the futures pointing to a gap up open some of the bearish pressure will be released. Just remember V-bottoms are rare and we should expect yesterday’s lows to see a retest in the near future. We will now have to tune into possible failure patterns at or near resistance.
Today my plan is to take the day off! We can expect after the morning rush to see volumes drop off quickly as may traders will be starting the 4th of July Holiday early. I will also not be trading on Monday. Tuesday the market is closed, but I will be back in the saddle Wednesday morning rested and ready for the challenges of summer trading.
Trade Wisely,
Doug
Bullish Follow-through is vital.
With the surprising strong move yesterday that it is vital we see some bullish follow-through price action today. There is no question the market as of late has proved it is capable of producing big whips in price, but the ability to follow-through is an important element the market has lacked the energy to do. Will today be different? Only time will tell. Another big question to ponder is how much risk are you willing to take with holiday trading likely to begin tomorrow. As for me I plan to trade smaller than normal positions and will take profits quickly if I do decide to step onto the playing field.
On the Calendar
Thursday begins with a significant number on the Economic Calendar. At 8:30 AM Eastern we get a reading on the 1st quarter GDP. If there is one number this week with the power to make a break the market, it would be the GDP number. Forecasters expect the number to come in unchanged at 2.2%. The question is can the market support these record high prices if the GDP continues show par growth in the economy? Also at 8:30 we will get the Weekly Jobless Claims which are at historic lows and consensus suggests this week’s reading will not change this bullish number.
Other than that, we have a Fed speaker at 1:00 PM and several non-market moving events to round out the day. On the Earnings Calendar, we have 35 companies reporting today such as AOBC, RAD, NKE, MU and CAG just to name a few members should be aware of as they plan the day.
Action Plan
Yesterday was a surprising whip back up on the back of easy money policy in Europe. The VIX is once again testing historical lows and raising the concern of complacency. The SPY is now right back in the narrow range chop zone where it has proved to be very difficult to trade due to the multiple reversal signals it has produced. The DIA and the IWM are looking strong yet still closed under high resistance. The QQQ’s had an impressive day holding support, but the overall the index remains in a downtrend and price is still below resistance.
As you plan the day keep in mind end of quarter window dressing could still be in play. We must also consider the 4th of July holiday on Tuesday and the effect that will likely have on volume moving forward. I would expect Friday and Monday to very light and choppy trading days so plan your risk accordingly. Friday and Monday I have decided that I will be taking off to enjoy my family during the holiday. Of course, I will continue to write the morning note and produce a morning video but other than that plan to be gone. Consequently, the RWO session for Friday and Monday has been canceled. With the market closed on Tuesday well will get back to work with regular schedules on Wednesday morning.
Trade Wisely,
Doug
Price Action Favors the Bears, But?
Price action certainly favored the Bears yesterday as the market sold off into the close and smashing through support levels. Normally we would expect to see more selling at the open today, but this choppy market is far from what I would call normal. Whipsaws can happen in either direction, and we certainly know this market has the willingness to whip. Also, keep in mind the possibility we could see a little end of quarter window dressing as we wind down the week. I will continue to expect very choppy and whippy price action so keep a close eye on the price action.
On the Calendar
Hump day begins with the International trade in goods report before the market opens at 8:30 Am Eastern. The April number deepened the deficit by 3.5%, but the consensus is expecting a slight improvement for the May number. At 10:00 AM we get a reading on the Pending Home Sales Index which is expected to improve by 0.5% this month. At 10:30 we get the EIA Petroleum Status Report which will likely be most watch number of the day. Supplies have been in decline but not fast enough to improve oil prices just yet. A continued draw down will be important for the overall market.
On the Earnings Calendar, we have 24 companies reporting today. MON and PIR are among those reporting and may be the most noteworthy for our members. It is also wise to keep in mind as the end of the quarter approaches watch for the possibility of window dressing which could begin at any time.
Action Plan
The afternoon selloff yesterday made a mess of the index charts. The SPY is very close to testing the 50-day average while the QQQ’s closed below the 50 for the first time this year. The DIA is currently the strongest of the indexes failed price support yesterday as did the IWM painting a pretty bleak picture. However, we are close to the end of the quarter which is often the time we see the institutions do a little window dressing before they close the books. Logic would suggest we see more lows today, but we should keep an eye our for a possible bounce that could begin at any time with that window dressing in mind.
My SPY hedge position at the end of the day was showing a very nice overall gain due to yesterday’s selling. As this position is entering its heavy Theta Decay period, it would be in my best interest to exit the position very soon. I will be watching the SPY closely this morning with that in mind and may take the profits today. Before adding any new trades, I will need to see some buyers stepping I to support current prices. I must also start watching for stocks setting ups short trades and begin building that list to prepared if we start to see a full on the shift in the overall market trend.
Trade Wisely,
Doug
Cash is a position often underutilized.
As short-term swing traders, we often get caught up in the idea that every day is a good trading day. Yesterday should have proved that idea to be untrue. Sitting in front of our computers, we get bored and feel the need to make trade decisions even when the market is proving to chop up our accounts. The problem is, most traders underutilize the decision to remain in cash. Cash is a position, and in times like this, it can be the best possible trade decision. If you find yourself tired of getting chopped up in this whippy price action losing back to the market your hard-earned profits, perhaps it’s time to stop trading. There is an old saying, if you find yourself in a hole then stop digging!
On the Calendar
Tuesday begins with the S&P CoreLogic Case-Shiller number at 9:00 AM eastern time. CoreLogic is a home price index tracking monthly changes in real estate values. Gains so far, this year have been strong, and forecasters see the April number increasing by 0.6%. I wonder how much longer we can see prices increase while real wage growth continues to lag way behind. At 10:00 AM we get a reading on Consumer Confidence. Customer attitudes on the economy have been falling back from post-election highs. Consensus suggests yet another move lower this month. Although these reports are important, they are unlikely to move the market unless they issue a number that surprises the market.
We have 2 FED speakers during market hours today with one of them being Janet Yellen herself at 1:00 PM. On the Earnings Calendar, we have 20 companies reporting earnings. A couple of note that members have been trading are KBH and DRI.
Action Plan
My warning of caution with the gap up open yesterday turned out to valid as the market issued a very cruel whipsaw to those who chased in emotionally. The DIA clung to price support, but the SPY’s reaction to price resistance pushed the index back to lower range of the chop zone, now in its 18th day. The QQQ left behind the most bearish pattern of all the indexes with a dark cloud cover pattern right at resistance. Surprisingly, IWM turned in the best performance of the day resisting sellers and closing just above resistance levels.
Futures are pointing to a slightly lower open but not nearly as much as I would have expected based on yesterday’s performance. I think there is a very good chance we remain stuck and very choppy. Yesterday should be yet another proof how dangerous and potentially damaging to your account choppy markets can be. I will continue to exercise caution favoring capital perseveration over risk until the price action shows improvement. For me that means more standing aside watching and waiting. When I do trade, they will be smaller than normal positions sizes. Always remember Cash is a position!
Trade Wisely,
Doug
SPY opens its 17th day inside a 3 point chop zone.
At the close of Friday, there were bullish signals popping all over the place with when the Bulls began to push the last 30 minutes of the trading day. However, the futures popping inspiring the emotion to chase let’s keep in mind that the SPY even with a gap up open will still be within the same 3 point range it has chopped in for 17 days. Could this be the bullish move that breaks us out? Yes, but it could also be just another setup for a whipsaw. Try to avoid the urge to chase and closely watch the price action. Wait for clues that real buyers are stepping in after the open and keep in mind that the SPY will still be trading near the upper resistance of the chop zone.
On the Calendar
We get the last trading week in June kicked off with the Durable Goods Orders at 8:30 AM Eastern time. Goods orders have only managed a produce a 1/10th monthly growth this year. The April reading marked a monthly decline of 0.7%. Consensus for May is suggesting another decline of 0.4% although ex-transportation orders may show growth. Other than that there are a couple of insignificant reports and a few bond auctions to round out the calendar.
On the Earnings Calendar, there are only 14 companies expected to report results today. Remember this is the last week of the 2nd quarter, so we will soon be right back into the thick of heavy earnings reports soon. When planning options trades, it is important to upcoming earnings part of your consideration.
Action Plan
Friday saw another day of indecisive price action but the last hour left us some important clues as the Bulls rushed in at the end of the day. That bullish action appears to have carried over to the pre-market futures which currently indicate a sharp gap up at the open. As you know, I am always cautious about gap up opens at or near market highs due to the possibility of whipsaws. I want to see real buyers stepping in after the open not just the market maker pump that can be nothing more than a trap.
Friday left behind some very good looking bullish chart signals. Two, in particular, will have my close attention at the open. WYNN and BSX are both possible trades this morning if they don’t gap up to far and if this futures bullishness translates to buyers stepping into the fray. Let’s keep in mind that the SPY has chopped in a 3 point range for 17 days. The expected gap up this morning will still be within this choppy range. What that means to me, is to avoid the whipped up emotion created by the pre-market futures and stay focused on price action. There is no reason to rush or chase into the market when all the early blustering opens in the day within the chop zone.
Trade Wisely,
Doug
Just 30 min. of price action spoils the day.
The slight push higher yesterday lifted spirits of traders yesterday, and I can imagine many traders rushed in an attempt to pick a bottom. Slowly they were rocked to sleep by the light volume back and forth afternoon choppy price action. Then in the last thirty minutes of trading, the rug was pulled out from under them. Unfortunately, this is the nature of price action around possible market highs. The discipline to stand aside is tremendously difficult learn. We want all days to be good trading days, but the fact of the matter is they are not. Sometimes doing nothing is the very best trade one can make.
On the Calendar
On Friday’s Economic Calendar we have a two important number to watch. First, at 9:45 AM Eastern we get the PMI Composite number which has been moving higher this year. However, expectations for today it that we see PMI decline. I doubt it will be a big market mover unless the number comes in sharply lower from May’s 52.7 reading. Keep in mind anything above 50 is growth. At 10:00 AM we get the New Home Sales Report which last month declined sharply. Today consensus is suggesting an increase to 590K or better. After that, we have three Fed Speakers needing to pontificate on interest rates.
We get a little rest in the Earnings Calendar today with only six companies reporting quarterly results. BBRY which was on the list yesterday must have needed a little more time to finish their report because it moved to today before the bell. I only bring that up because I know there are several members watching the stock.
Action Plan
After attempting a rally yesterday, the overall market whipped lower in the last 30 minutes of trading wiping out earlier gains. Only the IWM managed to hold on to a positive close. The good news is that the DIA and SPY continued to support before the end of trading. It is wise to remember just how quickly whipsaws can change the perception of the day in a short period. All can appear positive, but minutes later that rosy fragrance suddenly smells like something that came out of the south end of a northbound cow. Ugg!
Futures are currently suggesting a lower open that may bend price support to breaking points if traders start piling on at the open. Of course, the opposite is also possible. Opening lows could set up yet another engineered whipsaw attracting dip buyers. Although the overall trends are still up, I will have to stand aside until I see evidence of buyers moving in before looking for new positions. Friday is profit day so protect those gains by taking them to the bank.
Trade Wisely,
Doug
The 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.
