Mixed price action signals and emotion cloud the view forward.
Mixed price action signals coupled with the drama of a huge earnings day could make for a bumpy day. Over the last few days, the Bulls have made a strong statement smashing through downtrends and resistance levels. As a result, most traders have an upside bias. However, the shooting star candle pattern that appeared yesterday on the DIA and SPY raises the flag up uncertainty.
Today we have a huge number of companies reporting earnings. The question will there be enough positive reports to support current price levels. There are currently more companies with prices above $100 a share than ever before. As long as companies continue to perform that is not a problem but if too many show signs of stress at this altitude there could be trouble ahead.
The last thing I want to do is predict which side will prevail, Bulls or Bears. I want to avoid all the noise stay focused on the price action making the trades come to me. Flexibility and the willingness move with the market no matter the direction is critical. The price action of the market is always talking to us and leaving behind clues. The question is are you listening to and willing to see the clues or has your bias plugged your ears and fogged your vision.
On the Calendar
Today on the Economic Calendar we have three potential market moving reports at 8:30 AM eastern. The Durable Goods and International Trade numbers being most important with Weekly Jobless Claims to follow. Overshadowing the economic numbers today will be our first big day of earnings reports this season. With 477 companies reporting, plan for an extra dose of volatility today. Also, we must remember that Congress is moving forward on the new health care bill. Any news surrounding this controversial subject has potential market moving effects, plan accordingly.
Action Plan
My plan today calls for flexibility and a keen focus on price action. With the barrage of earnings announcements and news spun from DC anything is possible. With the DIA, SPY, and IWM tucked tightly against important resistance levels fast and extreme price moves are not out of the question. As a result, I don’t approach the market today with a bullish or bearish bias. I want to be prepared to react to price action clues without the fog of bias clouding my focus.
Trade wisely,
Doug
Trading discipline. Now begins the high drama of earnings season.
Controlling emotions and maintaining a trading discipline during earnings season challenges all traders. Over the next couple weeks prepare of an earnings barrage. CNBC will be pulling out it’s most dramatic bumper music, and the talking heads will be issuing predictions left and right. How can an average retail trader cope with this tsunami of data?
Have a plan and be disciplined enough to stick to the rules. Personally, I turn off the news and avoid the talking heads like the plague. I am responsible for my trading. No one cares about my money more than me. Consequently, I must stay focused on my plan and my rules! For me, that means digging into the charts and studying price action. Chasing big wins requires the willingness to take big losses if you’re wrong. I don’t know about you, but that is not part of my plan! The truth lies in the price action; everything else is just noise that can bias your decision process.
On the Calendar
The hump day Economic Calendar is a quiet one. The Petroleum Status at 10:30 AM Eastern is the only number of consequence today. The last reading showed a decline in supplies and as a result helped the overall market by lifting some of the big oil companies. Another declining report today could give us a little hope that a trend is developing. Perhaps, we could look to energy stocks for some tasty gains in the near future! The Earnings Calendar continues to Ramp with 299 companies reporting today. Stay sharp because some the media darlings will start reporting and they will affect the overall market.
Action Plan
I have been a net seller into this sharp rally taking some very nice gains. I’m now very light on risk in my account as I’m expecting the market to pullback or at a minimum consolidate the recent move. At least that is my plan, but earnings could easily toss a big monkey wrench into that plan. Clearly, earnings are unpredictable. As traders, the best we can do is stay focused on price action clues while maintaining our discipline to avoid getting caught up in the drama. I’m confident we will be entering several new stock or options positions over the next few days. Please keep in mind that during earnings season trades can move very fast. Stick to your low-risk entry rules and avoid chasing.
Trade Wisely,
Doug
Beware the Green Eyed Monster!
The Green Eyed Monster of Envy can destroy your trading! Last night I was talking with a fellow trader that was very disappointed with their trading. As we progressed through the conversation, it became clear that his disappointment and frustration was self-inflicted. Although he had turned the corner from a consistently losing trader to a net winning trader, it was not enough. Like all of us, he wanted more.
As a very competitive person he was comparing himself to other traders and the results they were posting. Envy was destroying his success! He was ready to quit trading because of the frustration even through his account was growing. Although we all work to help each other improve as traders in the trading room, trading is a single person activity. We all start from a different place, and we all have different goals. Comparing yourself to another trader is like comparing apples and oranges.
A trader must compete with themselves not others. Your goal should be to see improvement in yourself and your trading account. A good place to start is by setting small achievable goals for each week or each month. Record your results. If you only made $10 last month that is a Huge Improvement if you have been a losing trader! If in the next month you see a gain of $15 that’s a 50% improvement over the prior month. Small incremental improvements build confidence and over time builds big accounts.
On the Calendar
Today on the Economic Calendar we have the Case-Shiller numbers at 9:00 AM Eastern followed by New Home Sales and Consumer Confidence at 10:00. Although they are all important, the big number of the day is the New Home Sales and the one most likely to move the market. Earnings are starting to ramp up with 190 companies reporting today. Keep checking!
Action Plan
Futures remained positive all night and continued to push higher in the premarket as earnings roll out. How great it will be to have a follow through day after all the choppiness of the last couple months! I will be looking for new trades today. However, I will be watchful for signs of a pullback to test support because it could happen at any time. Yesterday was saw the Dow close up more than 200 points. It would not be out of the question to see some profit taking.
Trade Wisely,
Doug
The futures price action suggests the Bulls are back in town!
The pre-market futures price action seems to indicate that the Bulls got everything they wanted over the weekend. The establishment candidates win in Europe removing much of the uncertainty of their path forward. Also, our President has put a very ambitious plan for Congress this week. Not only is he expecting the passage of the New Health Care plan but also his new Tax Plan as well as a budget extension.
The Bulls seem to like everything they hear and apparently want to party like it’s it 1999. As I write this, the Dow Futures are pointing to a nearly 200-point gap up. It would be easy to let our emotions run wild this morning but let’s not forget that Congress must get something done! Passing just one of these important measures would be a big week for this Congress let alone three! If they fail should we expect a similar Bearish response in the market?
As much as I love seeing resistance levels broken, I have to remember that a one day gap up move does not make a trend. A pullback to test support is not only possible but likely. It would not be out of the question to see a big intraday whipsaw to test support with emotions running this high. Keep a very close eye on price action this morning for quick reversals. The wise trader will maintain discipline and stick to their rules of engagement no matter how emotional the market may be.
On the Calendar
The Economic Calander starts with week with a whimper but will end with a roar. Today we have no major reports just a couple Fed speakers pontificating on interest rates. However, as we move the week progresses we have several market-moving stories with the GDP number front and center Friday morning. The Earnings Calendar kicks into high gear this week with nearly 1200 companies reporting by Friday. Today more than 100 report earnings, so it’s a good idea to check and recheck before entering new trades.
Action Plan
At 8:00 AM Central Time I am being interviewed on a local radio station. I should be finished up by the time the market opens today, but I will likely miss the first 30 minutes of the day. I’m not holding many positions and stops are in place, so nothing to worry about there. Just as soon as I get back, I will dive into the charts to see what I can find.
Keep in mind; we could experience a lot of volatility this morning. Sitting on your hands for the first 30 minutes to allow the wild price fluctuations subside would likely be a wise move today. Eventually, the Market could wake up to the fact that Congress saying they will do something is a long way from them getting it done! If they fail, I think we could see Bears regain control. Buckle up it could be a rough week!
Trade Wisely,
Doug
Yesterday’s price action was great but can it follow through?
Thursday’s price action was just enough to inspire a hopeful vision of bullishness. As nice as it was to get some relief from the selloff yesterday, more is needed to prove that its over. One of the first lessons to be learned in trading is that one day of bullish price action does not make a trend. Follow through is required.
A single day of price action can suggest reversal; it can inspire bullishness but it truth without following though it’s only hopeful speculation. Let’s keep in mind that the DIA and the SPY rallied to test resistance but failed to break it. On the other hand, the Q’s and the IWM found the energy to break resistance. Now the question is, can it hold?
Personally, I hope that it can, but I’m unwilling to speculate and risk my capital until I see a bit more proof. I have a rule that resistance does not become support until its tested. Over the year that rule has saved me from taking significant losses Hoping that support will hold. Hoping that something is true is natural but risking capital on Hope is nothing more than gambling. Las Vegas has build monuments with the lost capital of hopefulness. I understand that waiting is hard, but it’s my opinion that waiting is much easier than the pain of loss.
On the Calendar
We kick off the Economic Calendar today with a Fed speaker at 9:30 AM Eastern time. The PMI Composite number quickly follow at 9:45 AM with Existing Home Sales at 10:00. Both reports have the potential to move the market. It would be wise to keep an eye on price action after these reports with the market as such a critical point. On the Earnings Calendar, we have 36 companies reporting today but keep in mind there are 110 reporting Monday. Plan accordingly and be prepared. Not checking is lazy and we all know there is no room for lazy when our money is at stake!
Action Plan
As you know, I consider Friday as Pay Day! As a result, my focus shifts from buying to new positions to taking profits. With all the uncertainty we are currently experiencing in the world right now I feel much more comfortable reducing risk before the weekend. One of the hardest lessons I have ever learned is never to allow greed to get in the way of taking a profit. We all want to hold our for higher gains, but experience has taught me that very often less is more. Commissions are cheap. I can always buy a position back on Monday, but I can not guarantee there will be a profit unless I put it in the bank!
Trade Wisely,
Doug
Uncertainty fuels the price action to another day of losses.
The short-term price action rally was only able to hold out for a brief time yesterday. The Bulls had a short-lived spurt of energy but once GS started to turn back down everything followed. Okay, enough of the past, where do we go from here? I would like to think we are due for an oversold rally. However, as of now, there is nothing in the charts to suggest that.
Earnings reports have the potential to dig us out of this hole, but if another bell weather like GS or IBM disappoints the Bulls may give up the battle. After the bell yesterday we had a good round of reports, and so far this morning the results have lifted the futures. The big question is will it be enough energy to break resistance? I think we will need to see a media darling company like Amazon or Facebook blowing the doors off of expectations to make that happen.
On the Calendar
Right out of the gate this morning we have a Fed speaker on the Economic Calendar at 8 AM Eastern. Two potential market-moving reports, Jobless Claims and the Philly Fed Survey at 8:30 AM. The jobless number would most likely have to be a big surprise to move the market. As a result, the Philly Fed number is the one to watch this morning.
Plan of Action
My plan for the day is simple. Maintain my current positions and carefully watch for clues of a bounce. Why a bounce? The overall market has been in decline for more than a month. I, of course, could easily be wrong but I think a relief rally could begin at any time. Keep in mind there is not a thing in the charts currently suggesting that! Also, know I will wait for evidence of a rally before adding long risk to my account. My rules require that I only take short positions at or near resistance, not at new lows. Waiting is hard but its better than buying up puts or trying to short at market lows.
Trade wisely,
Doug
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Is it time for a relief rally? The short term price suggests a possibility exists.
A relief rally may be in order, but there are several factors that could stop it dead in its tracks. The short term price action seems to suggest a small rally. However, let me be very clear. A short-term signal is only good for a very short-term. As the market moves toward the open and companies, report earning before the bell anything is possible. Please keep in mind that all the major indexes are still below daily price supports!
I know it’s hard to get daily bearish market readings because we all want the market to start moving back up. As a result, our bias for bullishness gets in the way of reading the chart. The opposite can also be true. After having a bearish opinion for such a long time, it is very easy not to see bullishness. The fifteen-minute charts of the SPY, IWM, QQQ and now the DIA are now showing a tiny trend.
Tiny trends are not much to hang your hat on, but at least it’s a sign the Bulls may be willing to fight back. This morning Black Rock, the massive ETF firm, blew away earnings estimates. The also reported huge inflows last quarter. I have mentioned that it’s the little things that make a difference. I have to confess when I see huge inflows into ETF’s it bolsters my confidence in the overall market. The problem is that’s not all w have to consider.
Stumbling Blocks
With all the saber rattling, foreign elections, upcoming budget battle in the US, there are a lot of stumbling blocks for the Bulls. That’s Not to mention all the possible obstacles that earnings season presents. With so much up in the air I think we should prepare for higher volatility in the weeks ahead. For me, that usually means trading smaller positions. I also want to prepare trading plans that take profits faster with volatile price action.
On the Calendar
First up on the Economic Calendar is one of those big stumbling blocks, the Petroleum Status report. If the number shows a big build in supply, the Bears could be emboldened. On the other hand, a decline in supply may be just what the Bulls need to break the downtrend. Keep and eye on that number at 10:30 AM Eastern time. At 12:30 PM have another Fed speaker follow by the Beige Book at 2:00 PM. Both are unlikely to move the market.
Action Plan
My plan for today is to remain cautious. The short term rally is encouraging but defeating the longer term resistance the Bulls step up in a big way. Earnings could provide them with the energy to do so, but any stumble and the Bears will remain in charge. For new traders, it remains a very tough time. Please protect your capital until we have clear signals that the downtrend breaks.
Trade wisely,
Doug
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The Price Action is Encouraging. The question is can it break through resistance?
The price action Monday was very encouraging. I kept going through charts and must admit the temptation to break my rules was strong. During the RWO session yesterday I marked up the index charts to illustrate where I would see proof of a reversal. My plan and the discipline to stick to it kept me taking the leap. With the Dow futures posting overnight lows of -60 points once again confirmed that sticking to a plan is the right thing to do.
To be honest, there are times when sticking to my plan has at times cost me money. We have all seen a reversal that rips higher and never looks back. At those time you want to kick yourself for sticking to a plan, however, most of the time, the plan will save you from yourself. I can show you years of statistical data to prove that sticking to a plan works. It shows that following a discipline (a process) that a plan provides is priceless.
Boring right? Who wants to follow a bunch of rules? A simple question to ask yourself if you trade without a plan; Is your account growing consistently? If your answer is no, then the question has to be are you willing to change? If you answer that question with an emphatic YES, then you have made a breakthrough. Your next step is clear. If you answered No; my suggestion would be to stop trading right now! Find an advisor that will put you in some diversified mutual funds. You and thank me later.
On the Calendar
Today we have a couple of market-moving reports on the Economic Calendar. First up we will get a reading on Housing Starts at 8:30 AM Eastern time followed by Industrial Production at 9:15. Between these big report, we have another Fed speaker with something to say at 9 AM. Today we have 53 companies reporting as we ramp this earnings season.
Action Plan
In the last hour, the futures have been climbing back toward positive gaining almost 50 points. The rally is mostly a result of the big bank earnings on BAC and GS. Their numbers were positive, but I have to say looking at the charts there is nothing that impressive. I plan to be cautiously optimistic today when looking for new positions. I will not be at all surprised to see a retest of overnight lows, however. Please keep in mind the indexes are right at the point where a failure to break the downtrend is likely to occur. The conditions are perfect for a whipsaw so plan accordingly.
Trade wisely,
Doug
Earnings Season Begins. Can The Big Banks Reverse Bearish Price Action?
The current downtrend and the choppy bearish price action is without question challenging for all traders. It tests our ability to maintain discipline and follow a set of rules. I have been trading for 27 years and can tell you honestly that dealing with choppy markets never gets easier. Temptations and distractions are everywhere. Sitting here day after day doing nothing but watching the market grind is frustrating to be sure.
With a couple of big banks reporting today, we kick off the second quarter earnings season. However, we also must realize that today is the last trading day before a three day weekend. Personally, I’m hoping the banks can reverse the downtrend, but my desire is not a good reason to trade. As the sole owner of my trading business, the responsibility to maintain discipline rests directly on my shoulders. I take that very seriously because my paycheck depends on the fact that I do.
On the Calendar
Along with the drama of the earnings kickoff, there are reports of note on the Economic Calendar. At 8:30 AM Eastern we will get the weekly Jobless Claims number as well as a reading on the PPI number. At 10:30 AM Eastern Consumer Sentiment number will be reported. My guess is the PPI number will the one most likely move the market this morning.
Although the market is closed Friday, at 8:30 AM Eastern the Consumer Price Index and Retail Sale numbers come out. Business Inventories report at 10 AM. Both the CPI and the Retail numbers are market-moving reports. With the market closed, we have to consider the possibility that Monday may produce a gap. Plan accordingly.
Action Plan
My plan for the day is simple. Manage my existing positions! While I will prepare for new positions, I will have Monday in mind. I see no reason for adding new trades today the potential for risk is simply too high. I have no desire to ruin a three-day weekend worrying about a bunch of new positions. Take the day off and do something fun. Make it a 4-day weekend and enjoy yourself! I can promise you the Market won’t care!
I wish you all a wonderful weekend.
Trade wisely,
Doug
Encouraging Market Price Action but Could It Be a Bull Trap?
One of the many issues I struggled with as a trader was chasing bullish price action. I had somehow picked up the notion that to be successful as a trader it was necessary always to catch the perfect entry. When I would see even the hint of bullish price action, I would leap in with both feet. As a result, my trading account bounced around like a Yo-Yo on a string.
Of course, sometimes I would be right, and the rewards made me feel like a trading genius. When I was wrong, which was about 50% of the time, I felt horrible as I waved goodbye my profits. It took me years to learn my problem was one of prediction. I would see and Hammer Candle Pattern like the one that formed yesterday on the SPY and the DIA. I would jump in predicting the Bulls were back! However, what I found about half the time is that I had stepped right into a Bear trap.
I suffered beating after beating ( I guess I’m a slow learner) before I realized price action is unpredictable. That Hammer Pattern would blind me to the overall price action. I would ignore the fact that the chart was not only still in a downtrend but obviously still under resistance. I would never notice that the hammer formed in a consolidation, not at the bottom of a selloff as the books I had studied displayed. The truth is I so badly wanted a move higher I would leap to conclusions well before the price had confirmed anything.
On The Calendar
On the calendar today we have Import and Export prices at 8:30 AM Eastern, a Fed speaker at 10 AM, the Petroleum Status Report at 10:30 AM, and the Treasury Budget at 2 PM. The import/export price can at times move the market from time to time. The big number of the day will be the Petroleum Status which will often move the market. On the Earnings front, we have 29 companies reporting today to keep us on our toes.
Action Plan
Futures currently are suggesting a slightly bearish open as I write this, so I want to continue to be cautious. The Hammer Candle Pattern gives me a little encouragement that the Bulls could take over. However, I will at a minimum need to see an upside follow through breaking the downtrend before I trust the Bulls strength. Even then I have to acknowledge there is still resistance closely above that still needs to be dealt with, before a clear path higher emerges.
Trade Wisely,
Doug
