The Calm Before the Storm

Although bullish, so far this week the price action has been choppy.  Many individual stocks performed well, but overall the market was simply marking time as it waits for the FOMC minutes and the kick off to earnings season.  Think of this as the calm before the storm. As the drama earnings season unfolds, we can expect to see greater premarket futures activity around the reports as the market first speculates and then reacts to the new data.  New and inexperienced traders often find earnings to be very challenging due to the big price swings they can create.

My suggestion is to focus on the price action, support levels, resistance levels and trend of the overall market.  Currently, the trend is up.  Stay the course and trade with the trend but avoid speculating on the individual stock earnings reports.  Also, I suggest turning off CNBC and all the emotion they stir up around events.  Drama is great for their ratings but not so much for your trading accounts.

On the Calendar

The Economic Calendar today is dominated by Fed.  We have a Fed Speaker at 7:17 AM and another at 2:40 PM.  However, it’s the FOMC Minutes releasing at 2:00 PM that will garner the most focus.  The market will be looking for clues not only to future interest rate increases but also details of their balance sheet unwinding plans.  At 10:00 AM  is the JOLTS report which tracks monthly changes in job openings.  The consensus is expecting this number to remain very strong at 6.160 million.

I’m showing just over 20 events on the Earnings Calendar today.  Before the market open we will hear from BLK, DAL, and FAST.  Keep in mind this is the calm before the storm on the earnings front.  Thursday we will hear from C & JPM with BAC and WFC on deck for Friday to kick off earnings season.  Make sure you are doing your due diligence on every trade because, and earnings surprise can be very costly!

Action Plan

Yesterday the morning pop was once again met with whipsaw in price action then followed by lots of chop the rest of the day.  The managed to close at yet another record high while the SPY, QQQ, and IWM chose to rest in a consolidating range.  Futures are currently pointing to flat to slightly lower open, but that could change because I’m writing this 3 hours before the open.

Don’t be surprised to see very light volumes and choppy price action until the release of the FOMC minutes at 2:00 PM.  Directly after the release, we could see some fast intraday price swings in reaction.  After that drama subsides, the market focus will turn directly to the big bank earnings which will begin before the market opens on Thursday.  As you know, earnings reports are unpredictable, and the big bank reports are normally market moving events so plan your trading accordingly.

Trade Wisely,

Doug

The Bulls take a healthy rest.

The Bulls take a healthy rest.

After a strong and extended upward run the Bulls take a healthy rest.  As much as we all like to see the market power higher a nice rest to develop a new level of price support is productive.  If the Bulls maintain control while building support, more buyers will be attracted, and confidence in the trend will expand.  Having taken profits into the rally, we are in very comfortable position without all the pressure.  Our profits are safe while those that allow greed to control their trading likely saw their gains diminish yesterday.  We are now free to find new low-risk entries.

On the Calendar

Another light day on Economic Calendar with the NFIB Small Business Index at 6:00 AM Eastern.  There is a Fed Speaker at 10:00 AM and one at 8:00 PM today as well as several bond auctions to round out the day.

On the Earnings Calendar, there are a few companies reporting, but I don’t see any market movers.  Keep in mind that Earnings Season will officially kick off on Thursday with reports from C and JPM.  Make sure to check all position you hold and those you are considering buying for earnings dates.  Fail to do so, and the consequences can be significant.

 Action Plan

Yesterday the market took a well-deserved rest pulling back slightly with choppy price action.  With the banks back open today we should see some better price action, but don’t be surprised if it remains choppy as we wait for the Fed Minutes.  Another reason the market could continue to pause is the kick off to Earnings Season beginning on Thursday.  Will the Bulls or the Bears be inspired as results roll out?

The overall up-trend continues strong, so I will continue looking for long positions.  Futures are once again pushing higher with the Dow suggesting it will open at or near record highs.  I would be cautious of chasing the opening pop as it could produce another whipsaw much like what happened yesterday.  I will give it a good 15 to 30 minutes to see if real buyers step in after the professional pump.

Trade Wisely,

Doug

Can this Bull Run continue?

As this week trading week comes to a close, the majority of traders have just one question on their mind.  Can this Bull Run continue?  Common sense would tell us the odds of a pullback after seven straight days of new records is pretty high.  However, the strength of the run ahead of earnings season already defies logic.  I say that only to remind you that predicting what a market may or may not do is an exercise in futility.  Anything is possible!  The best we can do as traders is have a plan with a set of rules to manage our emotions.  As a result of my rules made it necessary for me to lighten up my risk to the market by taking some profits.  Logic says a pullback is likely, but the price action has no hint of a pullback as of now.  If there are more buyer than sellers, then the market could still move higher!  What matters is that you are managing you and remembering that this is a business.

On the Calendar

On the Economic Calendar today we have the Mr. Big report at 8:30 AM with the Employment Situation.  As this report will incorporate the effect of the hurricanes, the consensus estimates are all over the place.  Essentially the best they can do is guess.  For example, the nonfarm payroll expects 100K, but the consensus ranges between Zero and 140K.  There are two reports unlikely to move the market, Wholesale trade at 10:00 AM and Consumer Credit at 3:00 PM.  There are 5 Fed Speakers on the calendar today.

On the Earnings Calendar, there are only eight companies reporting today.  I do not see any earnings reports that are particularly notable.

Action Plan

After the news reported a successful vote in Congress allowing the Tax Plan Process to move forward, the Bulls came out in force to express their support.  As I mentioned above, I reduced some of my risk to the market closing part or all of a few positions to capture gains ahead of the weekend.  The VIX made a new closing low yesterday below a 9-handle.  Truly amazing!  I think it would be wise to guard yourself against complacency.

Once again I will be more focused on taking profits today, but I will not rule out the possibility of new trades.

Trade Wisely,

Doug

Unable to find profit takers.

Although the market appears to be quite extended, its unable to find profit takers just yet.  The VIX continues to dance near historic lows but as of yet unable to make a run for a new low print.  Perhaps the market is waiting on all the Fed speak today or more likely focused on the Employment Situation number that comes out Friday morning.  None the less I will continue to be very focused on price action and prepared to take profits ahead of the weekend if weakness shows itself.  With an extended market and the weekend near, I will need to uncover a nearly perfect trade setup for me to buy additional risk.

On the Calendar

The Economic Calendar events of interest begin at 8:30 AM Eastern.  International Trade forecasters are calling for a narrowing of the trade gap this month due to the hurricane effect.  August is expected to come in at $42.5 vs. July’s 43.7 reading.  A narrowing trade gap should be of benefit to the 3^rd quarter GDP.  Also at 8:30 AM is the weekly joblesss claims and is expected to come in with a reading of 265K vs. 272k last week.  There are 4 Fed Speakers on the calendar today with three of them speaking in rapid succession beginning at 9:15 AM.  At 10:00 is Factory Orders which is expected to rise 1% in August vs. the 3.3% decline in July.

On the Earnings Calendar, there are only 14 companies set to report.  Of note are reports STZ before the open and COST after the close today.

Action Plan

The incredible strength of the Bulls kept profit taking in check even though it’s quite extended.  The promise of a tax plan continues to inspire investment no matter the price or valuation.  Also, keep in mind that earnings season will begin soon and there seems to be tremendous optimism of strong reports.

With the market continuing to show enough strength to hold up I maintained all the current positions.  As a result, I again will focus on price action and prepare to take some profits before the weekend if necessary.  As we wait for the big employment number Friday, it would not be a surprise to see choppy light volume action again today.

Trade Wisely,

Doug

Bullish But Stretched

Bullish But Stretched

There is no doubt that the Bulls are firmly in control as this rally continues to set new records daily.  Both the DIA and the SPY showing impressive strength while the rally in the IWM has been nothing short of incredible.  I think even the most enthusiastic traders would have to admit at this point the market is Bullish but Stretched.  Could we continue going higher?  Yes, we absolutely could, but the likelihood of a profit-taking pullback is growing.  It’s my opinion that trying to enter this run now is like a dog chasing a loaded truck and at high risk of being run over.

On the Calendar

Before the market open, we have the ADP Employment report on the Economic Calendar at 8:15 AM Eastern.  The ADP has been missing the actual number for months, and I think has begun to lose credibility with traders.  The August ADP was 237K while the actual came in at 165K.  Obviously a huge swing and miss.  The September ADP is looking for 140K.

At 9:45 AM we get a reading form PMI Services, but the more important number is the ISM Non-MFG Index at 10:00.  The ISM forecasters are calling for the September number to come in at 55.5 vs. the August 55.3.  At 10:30 AM is the very important EIA Petroleum Status Report.  The current rally in oil stocks would suggest the market is expecting further declines in supplies.  We have a Fed speaker at 3:00 PM and then the Fed Chair speaks at 3:15 today.

Action Plan

Currently, the futures are suggesting a flat to slightly lower open this morning which should not be a big surprise after such a strong run.  I believe the market could begin to show some stress and as a result, profit-taking could begin at any moment.  Please understand I am in no way shape or form suggesting bearishness because there is no evidence of that in the charts.  The VIX moved slightly higher yesterday even as the overall market us rallying.  That’s odd but could be a small clue to the stress I mentioned above.

My focus as always will be on the price action, and I will be much more inclined to take profits today rather than entering new positions.  I love selling into strength!  Like the song says, know when to hold em, know when to fold em, know when to walk away and know when to run.  I think is time to consider putting some money in the bank and walk away from the table for just a little while.

Trade Wisely,

Doug

Bullish but slightly apprehensive.

Bullish but slightly apprehensive seems to be a good description of the overall market condition this morning.  As the war of words continues to intensify between the US and North Korea, it’s like a nagging headache the market would like to ignore.  However, we should prepare for sudden spikes of volatility and the possibility of violent price action if another missile launch occurs.  There are a lot of great looking charts and bullish patterns, but I will only consider defensible low-risk positions right now.  I also want to guard myself against becoming overly long with such looming uncertainty.

On the Calendar

The last week of September begins with a light day on the Economic Calendar.  At 8:30 AM Eastern we have the Chicago Fed National Activity Index and then at 10:30 AM the Dallas Fed Mfg. Survey.  Both are reports of lesser importance and are unlikely to move the market.  We have three Fed Speakers today, one before the market open, one at mid-day and one what speaks after the close.  A few bond auctions round out the economic calendar day.

The Earnings Calendar shows about 25 companies expected to report quarterly results today.  Looking through the list, I don’t see any market movers, but RHT is one that I have seen mentioned in the several times in the trading room.  If you’re holding RHT make sure you have a plan when it reports after the close today.  We are only about three weeks away from the beginning of 4^th quarter earnings.  It would be wise to begin considering when companies report as you place new trades.

Action Plan

The uncertainty surrounding the weekend and North Korea only had a modest effect on the market last Friday.  If fact IWM finally managed a breakout and a new closing record high.  The DIA left behind and indecisive candle while the SPY managed to rally off of the morning lows.  The QQQ at one point in the day slipped below the 50-day moving average, but the Bulls went to work bouncing off the average.  Fear of a market sell-off seems out of the question with ViX very close to record lows or is this extreme complacency? You decide.

We took some nice profits on Friday to reduce risk to the market so as long as the market remains in it’s up-trend, I will be looking for new portfolio additions.  The Dow futures are pointing to a slightly lower open today, so there is no need to rush.  One chart of particular interest is AABA closing Friday with a great morning star pattern right off of support and trend.  Keep an eye on it for any follow through higher as a potential entry.

Trade Wisely,

Doug

Saber rattling intensifies.

As the saber rattling intensifies between the world and North Korea, the US makes moves to cut off the countries money supply.  So once again the market faces an uncertain weekend.  Asian markets reacted lower, but currently, the US Futures markets are trying to shake off the threat.  The Bulls have been incredibly strong, and yesterday the price action began showing a little stress.  Combine an uncertain weekend, with the market at this elevation some profit taking would not be a surprise.  I would also not be that surprised if the Bulls decide to thumb their nose at the threat an rally in defiance.  Stay focused on price action and try not to predict.  The clues will be there if stay focused on price and control our emotions.

On the Calendar

The last business day this week begins and ends with Fed Speakers on the Economic Calendar.  At 9:45 we get the important PMI Composite.  The September PMI consensus composite number expectation is 54.9, and the manufacturing number is coming in at 53.0.   After that, it should be smooth sailing with only a couple of minor reports unlikely to move the market.

On the Earnings Calendar, we have less than 20 reports expected today.

Action Plan

As we head into the weekend the North Korean “Rocket Man” escalated his threating rhetoric.  The news is now suggesting he may detonate a nuclear device over the water soon.  Overnight the futures reacted sharply lower on the news.  Currently, the futures are trying to shake off his latest threat pointing to only a slightly lower open.

Facing another weekend of uncertainty It would not be unreasonable to see some profit-taking.  Yesterday the price action in the major indexes began to show just a little stress.  The DIA is now displaying a Hanging Man pattern followed by a bearish engulfing candle.  Even though it’s a bearish pattern, it only suggests a lower print is possible today.  Stay focused on the price action because it will provide the clues if we allow it to do so.  As you know, I favor taking some profits before the weekend and will not change today.  Have a great weekend everyone!

Trade Wisely,

Doug

7^th Straight DIA Record

After the FOMC volatility, the Bulls demonstrated tremendous strength setting the 7^th straight DIA record.  Equally amazing is that SPY and QQQ’s remain stuck in choppy consolidations while the DIA does all the work.  As a result of yesterdays price action, there is a slight concern in the candle pattern that I describe in the Action Plan section of this post.  The DIA is clearly leading the overall market, but we will soon need to see the SPY and QQQ’s start to participate.  The IWM has made an impressive comeback, but it will be important to see how it deals with the resistance high.  As you know, I love taking profits into strength.  With the weekend nearing I will be thinking about banking some gains especially if the market begins to display any weakness over the next couple days.

On the Calendar

The Thursday Economic Calendar kicks off at 8:30 AM Eastern with the Weekly Jobless Claims.  Due to the impacts of hurricane season, consensus expects claims to increase to 303k today.  Also at 8:30 is the Philly Fed Bus. Outlook Survey which is expected to remain extremely strong with an 18.0 reading this month.  After that, we have lesser reports which are unlikely to move the market such as Housing Price Index and Leading Indicators.  The remainder of the calendar consists of bond announcements and auctions.

There are just over 20 companies reporting on the Earnings Calendar today.  Looking through the list, I don’t see any market-moving reports.

Action Plan

Yesterday I suggested we could see choppy price action ahead of the FOMC and violent price action after.  That turned out to be pretty much spot on, but even I was surprised by the violence of the post-announcement price action.  Ultimately the Bulls won the day with the Dow with it 7^th record-breaking high in as many days.  Unfortuinatually the SPY, QQQ’s and IWM were unable to break out.  With the DIA leading the way and its 9^th day up it left behind a possible Hanging Man Candle Pattern.  I used the word possible because would need a followthrough day to the downside to confirm the signal.  No, follow through, and the candle is just a day of wild price action.  The SPY and the QQQ are also left behind problematic daily candles if today happens to be a down day.

Currently, Dow futures are pointing to a flat to ever so slightly lower open.  With the market ups so strongly I will have a focus on taking some profits particularly if some weakness develops.  We are currently holding some very nice gains, and the last thing we want to do is allow the market to take them away.  Guard against chasing into trades with the market so stretched on the back of the Dow alone.  Only consider entering trades with low-risk at or very near price support levels.

Trade Wisely,

Doug