End of Day Rally Inspires Cautious Optimism

End of Day Rally Inspires Cautious Optimism

End of Day RallyThe end of day rally yesterday was nice to see as the Bulls continue to defend price support.  There are many that will point to the hammer candle patterns as signs of bullishness, and they could very well be correct.  However, let’s not forget that the same candle pattern can also ba a Hanging Man because of its placement near all-time highs.  Personally, I want to be optimistic that the Bulls are ready to push higher, but I must continue to prepare for the potential reversals.  Remember price swings can happen very quickly at or near potential tops.  Intraday whipsaw price action is common as highs are tested so it’s wise to be ready for additional volatility when planning new positions.

On the Calendar

Today is a busy Economic Calendar with reports that do have the ability of move the market.  It starts off with the ADP Employment Report at 8:15 Am Eastern.  The ADP number last month missed the mark calling for more jobs growth than actually showed up.  Today they the number is expected to be between 170k to 177K jobs created.  At 8:30 AM we receive the weekly jobless claims which have been tracking at 40-year lows.  The PMI Manufacturing Index comes out at 9:45 AM.  PMI is expected to come in with a very strong reading of 53.0 this month.

One of the heavy hitters this morning is the ISM MFG Index number at 10:00 AM.  Consensus suggests the ISM will come in steady and strong with a reading around 54.6.  Construction Spending numbers also at 10:00 AM have been tracking flat this year, but today forecasters are expecting an improvement.  Last but not least is the very important Oil Status Report.  If we want the market to continue marching higher, we will need some help from declining surplus supplies.  There are 45 companies are expected to report earnings today.

Action Plan

The end of day rally yesterday was inspiring but fell just short of providing bullish confidence.  I will approach the market today with some cautious optimism.  Futures are currently flat, but with all the morning economic reports quick price swings will be possible.  We must also keep in mind that the market may decide to simply wait for the Employment Situation number.

Trade Wisely,

Doug

Price action indicates fear of reversal is extremely low.

Price action indicates fear of reversal is extremely low.

Price Action No FearAlthough price action yesterday lacked energy it continues to suggest there is no fear.  QQQ’s continued to dominate holding up all the other indexes and marking out yet another record high.  VIX the so-called fear index is once again testing prices near historic lows.  Overall market trends remain bullish, so I will continue to seek long positions but want to guard against complacency.  Always be mindful around market highs that reversals are possible and can develop swiftly.  Maintain focus on price action and be prepared to act no matter the direction avoiding personal bias.

On the Calendar

The hump day Economic Calendar starts will the Chicago PMI at 9:45 AM Eastern followed shortly after by Pending Home Sales at 10:00 AM.  The Chicago PMI has been tracking strongly above the mid-50’s for several months in a row.  Although consensus is expecting a slight pullback this month, the should remain over 57 suggesting economic strength.  The Pending Home Sales Index fell last month, but forecasters are expecting a rebound this month.

This afternoon at 2:00 PM Eastern we get another reading of the Federal Beige Book.  We will also hear from two Fed speakers today.  One at 8:00 AM and the other well after the market close at 7:30 PM.  On the Earnings Calendar, there are 40 companies expected to report today.  Although there is no market-moving earnings report, it is still important to continue checking before entering new trades and managing existing positions.

Action Plan

Yesterday’s light price action was as expected, but there was notable strength in several tech sector stocks.  QQQ, once again claimed new record highs while the other indexes lagged behind on anemic volume.  Futures has fluctuated this morning between negative and positive readings.  I am hoping to see slightly more energy today but will continue to be very picky until I see buyers actively stepping in at these levels.  I will continue to remain bullish if the uptrend continues to hold.

Keep in mind that with all the data points building toward the big Employment Situation report on Friday, that light volume choppiness is possible.  Although I want to trade with the direction of the market, I want to be mindful not get overly long until we see price action proof that new support levels have buyers defending them.

Trade Wisely,

Doug

Sell in May and go away? Not so much!

Sell in May and go away? Not so much!

Sell in MayThis year those that followed the old axiom, “Sell in May and go away”; missed out on big time.  Fear of a sell remains at near record lows, and it seems even the smallest selloffs attract dip, buyers.  Nothing about this year has so far has qualified as normal.  As a result, we must remain very focused on price action clues and prepared for anything.  That means don’t become complacent thinking that the market it too strong to sell off because that is a mistake that can remove all your profits for the year very quickly.  If buyers continue to show strength at these levels, we must also be ready to act.

With no major news events over the holiday, I would expect a light volume day as many traders will have planned extended vacations.

On the Calendar

Although this is a short week, the Economic Calendar is full of very big reports.  It kicks off the today with Personal Income and Outlays at 8:30 AM Eastern.  Consumer is spending is expected to see an improvement over last month, but consensus suggests personal income will remain soft.  At 9:00 AM we get the S&P Case-Shiller numbers followed by the Consumer Confidence reading at 10 AM.

Housing demand has been extremely strong this year bu the Case-Shiller number is expected to soften from 6% to 5.8%.  Consumer Confidence is also expected to retreat ever so slightly today but continues to remain very strong and near 20-year highs.  There are only 33 companies on the Earnings Calendar today, and there are none that would likely move the market.

Action Plan

Although it is likely to just a little more price action today, then we saw last Friday I am expecting much.  There were not any major new events over the holiday, and the evil doers of the world behaved.  Futures are pointing to a slightly soft open, but that should not be a surprise after last week’s breakout.  My plan is of course to manage my current positions, but I will need to see some good price action before concerning myself with new trades.  Ultimately I want to see the overall market test and hold the breakout of last week before getting too excited about adding new risk.  Historically June is a month that is flat to just slightly positive.  However, there is nothing about this year that has been normal, so we need to prepare for that fact that anything is possible.

Trade Wisely,

Doug

Preparation and discipline are vital at market highs.

Preparation and discipline are vital at market highs.

PreparationI believe preparation and discipline are integral to a trader’s success.  As the market entertains new record highs, thoughtful preparation, and the discipline to stick to a plan become vital.  Those who choose only to view the market through rose colored glasses will miss important price action clues.  Traders that only see gloom and doom are equally incorrect as they will fail to take action when the possibility of gains present themselves.

To be successful, a trader must set aside personal biases and realize that anything is possible.  At or near market highs it is necessary to plan for and have the willingness to see the potential of price failures.  It’s equally important to visualize the potential of bullish clues and have plans to capitalize on them if they occur.  What we think should happen or attempting to predict what will happen next waste time and cloud the trader’s ability to plan objectively.

On the Calendar

The last Friday in May starts with two very important reports on the Economic Calendar.  At 8:30 AM Eastern both Durable Goods Orders and GDP reports are released.  At 10:00  AM the less impactful Consumer Sentiment numbers roll out.  Durable Goods has been holding up quite well but today Wall Street number crunchers say we should expect a negative number today.

Of course, the GDP number is the biggy of the day and has the ability to move the market.  The overall GDP number is expected to remain at 2.3 as a result of very weak consumer spending.  There are only 14 companies on the Earnings Calendar today, and none of them should be very impactful to the overall market.

Action Plan

Friday is profit day, and ahead of a three-day weekend, it becomes even more important.  In anticipation, I have been taking profits and trimming exposure to the market all week.  There are several however that I plan to carry through the weekend unless something major changes today.  Another factor to consider is that price support of the breakout still needs to be tested.

I will remain cautious until price action confirms support with buyers actively buying at this level.  Obviously, if support happens to fail and the Bears would likely be emboldened to take control.  I for one want to keep a very watchful eye on price action, and I plan to do so largely from the sideline to protect my capital.  I won’t completely rule out adding new positions today, but it’s highly unlikely.

Trade Wisely, and have a fantastic weekend!

Doug

Gapping, to new record highs. Bulls are large in charge.

Gapping, to new record highs.  Bulls are large in charge.

New Record HighWith the market gapping to new record highs we have applauded the Bulls.  An impressive performance that was certainly not expecting.  Now the bigger question has to be answered.  Can the hold the new highs or could this be a beautiful head fake?  Only time will tell, and I am only too happy to wait on the sideline for the answer.  If they do hold, I will be ready to buy with both hands after the long weekend.  I may regret waiting, but I will have a worry free 3-day weekend.  What will you choose?

On the Calendar

Frist off the Economic Calendar docket this morning m is International Trade Goods at 8:30 AM Eastern.  The trade deficit has been getting slightly wider over the last couple reports but not so much to have caused much of problem in the overall economy.  Even so, we don’t want this to become a trend.  Also at 8:30 we get the latest reading on the Jobless Claims which has been pointing to a growing demand for workers.  A low number shows a strengthing economy but can also suggest that inflation it on the rise providing cover to the FOMC for more rate increases.  I know it’s a bug surprise, but there will also be a couple of Fed speakers today!

On the Earnings Calendar, we have 72 companies reporting today.  Rental reports are heavy on the list today with ANF, BBY, BURL, COST, DECK, DLTR just to name a few.  This sector has seen some significant challenges this quarter so let’s hope these companies report strong results.

Action Plan

Futures are pointing to big gap up this morning allowing not only the Q’s to make new record highs but also the SPY.  The DIA and the IWM lag behind but should also show a very strong open today.   A perfect V-formation is very rare in the market, but that is what we see right now in the charts.  I can point to nothing other than the possible increase in inflation to explain this rally.  All the uncertainty that created the selloff still exists.  However, it is not our job to understand the why?  Leave that to the talking heads.  As traders, our job is to follow!

Unfortunately, this breakout is occurring directly ahead of a 3-day weekend.  Because of that, my plan remains the same.  I will not chase this move into a long weekend.  I will continue to collect my gains as per my rules and manage the trades I continue to hold.  I will be flush with cash next Tuesday and ready to buy if the market can hold this new level.

Trade Wisely,

Doug

Bullishness or complacency. You decide.

Bullishness or complacency.  You decide.

complacencyDo you believe the market is truly bullish or is this complacency?  The Bulls have done a remarkable job in this rally but do they have the energy to break through resistance?  The VIX suggests there is virtually no fear in this market.  Could it be complacency?  If I knew the answer to that, I would soon be very rich!  Sadly I’m not able to see a future outcome. Thus I have to be prepared for anything.  We have a three day weekend ahead of us, and in my opinion, uncertainty abounds.  Have a plan.  Don’t be like sheep, blindly strolling into danger just because others might be doing so.  My recommendation is to be very cautious right now.

On the Calendar

Wednesday’s Economic Calendar starts off with Existing Home Sales at 10:00 AM Eastern.  Home prices have been rising and days on the market have been falling this year.  The numbers would suggest the economy is strong but also hints of inflationary factors heating up.  At 10:30 we have the Petroleum Status Report.  Efforts to lower supplies seem to have finally started to work, however, if there is an increase we can expect a negative market effect.

The big news of the day will be the FOMC minutes at 2:00 PM.  With Fed members speaking almost every day I can’t imagine we will learn anything new, but they will make a drama out of it never the less.  CNBC will play their most dramatic bumper music, and the talking heads will ramp up the emotion before and after the release.

Action Plan

You may have missed it, but there were some big news events overnight.  The most important; Moody’s downgrade the credit rating of China do to their rapidly growing and massive debt.  As of now, the markets have shrugged it off as if nothing happened.  Personally, I think this is another clue of complacency and maybe a warning of troubles ahead.

I recommended caution yesterday and maintain the same stance today.  A long as the market continues to test price resistance but shows the inability to breakthrough it I will remain cautious.  For me, that means I will continue to trade long but will limit the number and size of my trades.  I will be very picky on the trades I take and will have exit plans ready to execute on any clues of failure.  Go Bulls!

Trade Wisely,

Doug

Is your bullish confidence stronger than your tolerance for risk?

Is your bullish confidence stronger than your tolerance for risk?

ConfidenceIs your confidence in this rally enough to risk capital at resistance?  The recovery from last Wednesday’s selloff has been impressive, but let’s keep the overall price pattern in mind.  Price resistance is still price resistance and the uncertainty that created the selloff as not changed.  Could the Bulls just plow right through to new highs?  Obviously, the answer to that question is yes; resistance is not forever or unbreakable.  However, the question we as traders have to grapple with is, how confident are you in the strength of the market at resistance?

One the Calendar

On the Economic Calendar, today is the PMI Composite at 9:45 AM Eastern follow by New Home Sales numbers at 10 AM.  Both reports have the potential to move the market, and both are indicators as to the health of your economy.  They have been tracking positive, but New Home Sale are leading the way with very strong results.  On the Earnings Calendar, we have 41 companies reporting today.  INTU is the big tech reporting after the bell today.  Keep an eye on a couple of the room favorites MOMO reporting before the bell and TTWO reporting after the close.

Action Plan

At the risk of sounding like a broken record, I want to remain cautious when adding new risk.  As you know, I’m currently long eight positions and want to avoid adding risk as the market tests resistance levels.  Having said that there are a lot of good looking charts so if you decide to trade so be choosy.  Markets can reverse very quickly at resistance so look for low-risk entries and consider smaller than normal positions.

Futures are suggesting another positive open.  One of the things I always watch for when the market is testing resistance and the futures are pointing up is the whipsaw.  Please understand I am not predicting that a whipsaw will occur.  I am only pointing out that this is the perfect place for them to occur.  The good news is whipsaw price action will usually show itself within the first 30 minutes of trading.  Avoid rushing in at the open, and you can often avoid the whipsaw.

Trade Wisely,

Doug

Price Resistance, Who will prevail?

Price Resistance, Who will prevail?

Price ResistancePrice resistance is the battle line of the Bulls and Bears.  If the market is trending and holds above price supports, I always give the benefit of the doubt to the Bulls when challenging resistance.  The selloff last Wednesday sliced right through and broke price support like a hot knife through butter.  The rally into the end of last week brought us right back test resistance levels.  Believe me, I want to see this market break higher, but because support broke, I have to give the Bears the edge at resistance.  I will remain very cautious when it comes to adding new risk at this level.  If I do decide to take any long positions, they will smaller than normal due to the higher perceived risk.

On the Calendar

Monday kicks off with no reports on the Economic Calendar but a total of 6 Fed speakers that feel the need to pontificate on interest rates.  It would appear they have a lot to talk about because tey will be talking every day this week.  We also must keep in mind that with the President traveling any news suggesting success or failure on this part could potentially move the market.  On the Earnings Calendar, we have 41 companies reporting today.

Action Plan

It was nice to have the relief of the rally last Thursday and Friday.  However, it is important that we notice the major indexes are right back into resistance zones.  The Bears have had plenty of time to dig in and reinforce their battle line trenches, and I would doubt they that they will give them up easily.  As for me, I want to manage the positions that I’m currently holding but remain very cautious on adding new risk.

I, like everyone else, would love to see the market move higher.  If I remove my rose colored glasses just for a moment, I see that price is in the perfect location for a reversal.  Please understand I am not suggesting that is what will happen!  I am only pointing to the potential danger and the reason I won’t be in a hurry to add risk.  I will happily change my thinking if the Bulls find the energy to overrun the Bears defenses.

Trade Wisely,

Doug

An oversold bounce on Thursday but now what?

An oversold bounce on Thursday but now what?

Oversold bounceThe oversold bounce was a nice relief yesterday, but difficult challenges lie ahead.  The DIA, and SPY, have a huge hill to climb through a thicket of thorny underbrush.  The IWM, well it’s looking up at a mountain covered in glacier ice!  The QQQ has the best chance of conquering price resistance having only a grassy foothill to mount.  The question is do the Bulls have the energy to climb on a Friday facing the uncertainty of the weekend.  Keep in mind that the Bears still have the advantage and run downhill much faster than anyone expects.  Wednesday was proof of that.  I suggest extreme caution as we head into the weekend.

On the Calendar

Only Fed Speakers grace the Economic Calendar today there are no economic reports scheduled to be released.  On the earnings Calendar, there are only 14 companies reporting today.  CPB and DE are among the most not worthy.

Action Plan

The Bulls did a pretty good job bouncing back from Wednesday’s lows, but we are not out of the woods by any means.  All the major indexes face the significant challenge of overhead price resistance price resistance.  With the market now facing the uncertainty of the weekend expecting the market to break through is asking a lot.  I’m not saying its impossible just unlikely.  As of right now, the futures are pointing to a positive open.

I’m not going to rule the possibility of adding new positions today, but if I will keep the size of the trades small if I pull the trigger.  Now I have to step over to the dark side and ask the question what if the market fails at resistance and starts back down?  What if we see selling into the close of the day?  As of now, I am ver comfortable with current holdings and willing to hold them through the weekend.  However, if the Bears begin to charge south, I will need to reevaluate that decision.  Selling into the close on a Friday often means new lows are in store for us next week.

Trade wisely,

Doug

Complacency took a big bite out of the bulls.

Complacency took a big bite out of the bulls.

ComplacencyComplacency is dangerous in the market.  When trader and investor slip into the thinking that the market is safe and there is nothing to worry about,  it’s time to very worried!  When complacency and resistance highs meet, it can trigger the perfect storm.  Suddenly everyone becomes hyper-aware of the danger, and they begin to sell with both hands.  The market itself appears to just leap out of the window.  Volatility will now be high for a period, and price action will become more erratic.  The index charts look like a slow moving train wreck.  Go ahead and watch it but do it from a safe distance.

On the Calendar

Thursday kicks off with the weekly Jobless Claims numbers at 8:30 AM Eastern followed by the Philadelphia Fed Business Outlook Survey.  The Philly Survey is a snapshot of manufacturing health within that specific district.  The expectation is for additional strength this month.  April came in at 19.6 with an expectation of a 22.0 reading this morning.  On the Earnings Calendar, we have 61 companies reporting this morning.  Among them are BABA and WMT.

Action Plan

My plan for today is simple.  Manage my few remaining positions and sit on my hands.  Futures are pointing to a gap down of about 100 points this morning.  Clearly, emotions are high.  The VIX shows us that complacency was at record levels.  Traders and investors alike that had been lulled to sleep are now in panic mode.  Don’t be surprised to more selling and volatility continue to rise.  A relief bounce could come at any time, but I wouldn’t expect it to be tradeable except by very experienced traders.

If you are a new trader or inexperienced, I highly recommend you stand aside.  Practice in a paper account, watch and learn how these events affect price movements.  Allow the volatility to dissipate and wait for clear entries.  If you think you can predict the turns; Stop right now!  Emotions are unpredictable and can pivot on a dime.  Calmer heads will prevail eventually but until then protect your capital.

Trade wisely,

Doug