Preparation and discipline are vital at market highs.
I 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.
With 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.
Do 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 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 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?
The 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 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 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.
The 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.
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
I 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.
