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

Reversal concerns at resistance. Who’s responsible?

Reversal concerns at resistance.  Who’s responsible?

reversal dayReversal concerns that I have been warning about seem to have had some merit.  As soon as the retail market closed yesterday the futures began to plunge south.  Undoubtedly there are a lot of traders that will feel slighted this morning.  Most will place the blame for their troubles on the mean market rather than accept responsibility.

In truth, the clues of this possibility have been all over the place.  The failure to notice them rests fully on the shoulders of the trader.  I know that sounds harsh but it’s the truth.  If the trader accepts the responsibility then this becomes a learning experience that will not be forgotten.  However, it will be quickly forgotten and likely repeated by the trader that assigns blame somewhere else.  As we always say, price action is leaving us clues and they must not be ignored.

On the Calendar

A light day on the Economic Calendar today with only the EIA Petroleum Status Report numbers of any significance.  It will be out at 10:30 AM Eastern time and could easily move the market after its release.  To also keep us on our toes with have 50 companies reporting today on the Economic Calendar.

Action Plan

It would appear my concern about the struggle with we were having with price resistance is being validated this morning.  I know some likely thought I was out of my mind selling positions that were still going up yesterday.  I’m sure glad we did at this point!  Now, we must focus, avoid emotion and deal with the current trades we are holding.

My plan will be exit positions calmly and as efficiently as possible but only after an evaluation of price action.  For example, our long-term position in MSFT will most certainly lose some value today but at this point, I don’t feel a need to cut lose.  As the day progresses that decision could change but for now, I want to stick with the trade.  However, others will likely have to be closed quickly to maintain profits.  In short, I want to react to current conditions with a business frame of mind.  Emotional decisions have no place in business.

Trade wisely,

Doug

Bullish price action warrants cautious optimism at resistance.

Bullish price action warrants cautious optimism at resistance.

Bullish Price ActionThe bullish price action and the strong close lifted my optimism of a breakout yesterday afternoon.  Because I am long 12 positions, I obviously have an upside bias, but I must acknowledge the overhead resistance.  Even with the great effort, the Bulls made yesterday resistance still proved to be a stumbling point.  I’m holding out hope that today will be the breakout but I am prepared to capture my gains quickly if resistance proves too strong.

On the Calendar

The Earnings Calendar kicked off early this morning with HD reporting better than expected earnings about 6 AM Eastern time.   Let’s hope the 70 plus other companies do as well and it’s enough energy to break the market out of the current price range.   For now, I will cheer for HD because the DIA needs all the help it can get!

On the Economic Calendar, we have two potentially market-moving reports.  First, off is the Housing Starts number at 8:30 AM Eastern followed by Industrial Production.  Both are important numbers because they directly point to the health of our overall economy.  Growth in both areas would sure help to lift the market out of its recent doldrums.

Action Plan

I am approaching the market with cautious optimism.  The nice showing in the SPY yesterday and its strength into the close inspires the optimism.  The caution comes in the form of resistance that as of yesterday proved to an obstacle the market was unable to overcome.  As a result, I’m happy to be holding a significant number of long positions yet feel the need to manage them closely.  If a failure price pattern were to occur this would be the place to watch for them.  Currently, futures are pointing to a slightly positive open, but a lot can happen over the next couple hours as the market responds to earnings and market reports.  My plan is to stay long, but I will be laser focused on the markets price action and will not hesitate to capture gains if a failure pattern develops.

Trade wisely,

Doug

Consolidation enters week #4 as choppy price action continues.

Consolidation enters week #4 as choppy price action continues.

Consolidation The long the consolidation lasts the bigger the pressure becomes and the possibility of a big fast move.  If the move happens to occur in the overnight or pre-market sessions, a trader can themselves trapped in bad positions.  Although I will continue to trade, I will limit the number and size of the trades as a method of controlling risk.  Discipline to stick to a plan can be difficult to matain during long consolidations.  However, the trader that breaks discipline may quickly find themselves on the wrong side of price when the break occurs.  Please be careful!

On the Calendar

We kick off a this Monday with the Empire State MFG Survey at 8:30 AM Eastern time follow by the Housing Market Index 10:00 AM.   Later today at 4 PM the Treasury International Capital numbers will be released.  These are all important reports, but it’s unlikely they will move the market unless they happen to issue a very big surprise.  I know you will all be shocked, but there are no Fed speakers today on the calendar!  On the Earnings Calendar, we have just over 240 companies reporting today in what looks to be the last mass reporting days this quarter.

Action Plan

As the market remains in a choppy consolidation at resistance, we must remain cautious and flexible and focused.  Cautious, because of the pressure that is building for a big move and no one knows which way.  Flexible, due to the fact we may be required to reverse our trading plans very quickly when a breakout or breakdown occurs.  Focused on price action even though it’s easy to become bored and complacent during a long period of chop.

Futures are pointing to a higher open today, but it would seem we still lack the energy to break out.  Manage the positions you’re in and move slowly to enter new long trades as we bang away at the door of resistance.  Now is the time to be very picky a to cut positions sizes if you do decide to enter new trades.

Trade Wisely,

Doug

Choppy price action continues. Will the consumer break the tie?

Choppy price action continues.  Will the consumer break the tie?

Choppy Price ActionChoppy price action is very difficult for all traders to manage.  This week I have been warning of the dangers of being overly long the market when resistance has been so difficult to breach.  So far we have been lucky that the Bulls and Bears have remained equally matched.  The tie breaker could be today when we get a read on the strength of the consumer.  I think it would be wise to prepare plans for both a break of resistance and support.  Because we have been in such a tight range for so long, pressure continues to build and price move on any break could be substantial.  Be prepared!

On the Calendar

Today on the Economic Calendar we have the Consumer Price Index and Retail Sales reports at 8:30 AM Eastern time.  I think both of these numbers will be of utmost importance and will likely set the direction for the market.  At 10:00 AM we get a reading on Business Inventories and Consumer Sentiment.  So far every single day this week there have been Fed speakers and Friday will be no different with three speakers.  On the Economic Calendar, there are only 60 companies reporting, but that is not an excuse to stop checking.  It only takes one report like SNAP to destroy a traders progress.  Always find out when a company reports and have a plan to protect your capital.

Action Plan

I need to be a flexible this morning and have a couple of plans prepared.   I”m think today will hinge on the strength of the consumer.  With the overall market chopping sideways at resistance the Retail Sales numbers could easily be the deciding factor on direction.  As a result to be prepared with a couple of plans.

If the numbers are really good and the market reacts positively, I want to prepare for a potential upside breakout.  If this occurs will want to hang on to existing positions and even look for new trades that are set up.  Toward the end of the day, I will have to make decisions on individual positions; take profits, or hold through the weekend.

If the numbers show weakness in the consumer, the market will likely react negatively.  With price support so close it could easily give way allowing the market to tumble lower.  In that event, I want to be ready and willing to close profitable positions and protect capital on trades losing money.  Obviously, a negative close below support could lead to more selling early next week.  Consequently, I would want to go into the weekend with less exposure to the market.

Trade Wisely,

Doug

The Bull’s showed resilience defending price support.

The Bull’s showed resilience defending price support.

Defending Price SupportDefending price support with the Bears on the attack was important yesterday but price resistance continues to pose a problem.  I have to admit that the Bulls displayed much more resilience than I was expecting.  Great job Bulls!  As a result, I want to be very bullish, but the fact remains that both the DIA and the SPY remain in a sideways consolidation.  Don’t get me wrong I’m very grateful the Bulls defended the borders but they still seem to lack the energy to breakout.  Futures are suggesting the Bears may be trying to regroup to mount another offensive this morning.  Can the Bulls continue to hold?

On the Calendar

The Economic Calendar kicked off early today with a Fed speaker at 6:25 AM Eastern.  The good news is that’s the only Fed member with something to say today!   Is it just me, or does anyone else miss the days when the Fed was a lot more tight lipped?  LOL.  The weekly Jobless Claims numbers are a 8:30 AM as is the biggest number of the day Producer Price Index.  On the earnings front, we will receive reports from over 300 companies today.  The earnings calendar finally begins to lighten up next week and slowly wind down this quarter’s reports.

Action Plan

If the Bulls continue to show resilience defending support as well as they did yesterday, we will be in good shape.  However, the Bears are attacking again this morning with the futures pointing to a lower open.  Currently, hold 13 long positions I think is necessary to exercise a little caution on entering new trades.  At the close of yesterday, all 13 positions were winners, so my top priority will be managing current trades and possibly taking some profits.

With the majority of the open positions being tech related I will keep a close eye on the QQQ.   If there is a weakness there, I will be more inclined to start banking gains and reduce risk.  I suggest everyone tighten up your stops.  Remember trades can happen much faster than it’s possible to send out alerts.  If you’re happy with the gain, take it.  You can never go broke taking a profit!

Trade Wisely,

Doug

 

Bearish engulfing price action at resistance. Bears gain the advantage.

Bearish engulfing price action at resistance.  Bears gain the advantage.

Bearish EngulfingThe bearish engulfing candles left behind yesterday on the DIA and SPY put the Bears in temporary control of market direction.  The fact that they took control right a price resistance is also very important as well as concerning.  Clearly daily supports are still in place, but we should expect at a minimum a strong challenge.  There is no need to panic but caution flags and warning lights are flashing.  This bearish attack could be short lived but it could also be the first warning sign that this bull run has come to and end.  The Bulls will certainly fight back but we should never ignore the seriousness of a potential failure at resistance.  Plan accordingly.

On the Calendar

The Economic Calendar starts to heat up today with some important reports through weeks end.  Import and Export Prices kick things off at 8:30 AM Eastern time followed by the Petroleum Status Report at 10:30 AM.  This afternoon at 2 PM the Treasury Budget will be released.  Of these reports, the most likely to move the market is the Oil Status Report.  Also noteworthy are the two mid-day Fed speakers.  The Earnings Calendar has over 350 companies reporting today.

Action Plan

The last couple days I have been warning about the dangers of getting overly long a market that’s struggling to break resistance.  Yesterday afternoon the Bears began to overwhelm the Bulls breaking intraday support levels.  This morning the Bears continue their offensive with futures number suggesting the Dow will gap down about 50 points.

Watch your positions closely this morning and be prepared to take profit or exit trades to stop losses if necessary.  The SPY and the QQQ seem to be less affected, but if the DIA continues to push lower, it certainly has the power to pull the other indexes down.  So at least for this morning, the plan will be account management, possible profit taking, and capital preservation.  Keep in mind that daily supports are still in place, so there is no reason to panic, but we also don’t want to bury our heads in the sand.  Always be prepared to act.

Trade wisely,

Doug