Big gaps, high emotion – A dangerous combo.

The sell off last week spiked the VIX more than 65% suggesting elevated volatility and challenging price action ahead.  A Monday morning professional gap up of nearly 100 points only increases trader emotions.  For years I made the mistake of getting caught up in the drama of this kind of price action.  I would chase it down and chase up thinking I was missing a big opportunity to make money.  After years of poor results, I finally wised up and realized that often less is more.

What I mean by that is commonly traders get caught up in the idea if the market is open then they have to be trading.  That is just not true!  The best traders in the world watch and wait much like a sniper patiently for one shot.  I found that if I could avoid the drama, watch, wait and plan I traded less but made a lot more money.  My win/loss ratio went way up, and my trading account started to grow rather than the endless Yo-Yoing I had been experiencing.  When the markets become volatile, it is easy to over trade and get caught up in the drama.  Not every day is a good day to trade if you want to maintain your edge.  Always remember sometimes less is more!

On the Calendar

The Economic Calendar decided to extend the weekend by largely taking Monday off.  Other than a bill announcement and a couple of bill auctions there is nothing on the calendar today.

Today is the last big earnings day for this quarter with about 220 companies reporting results.  Earnings have been a major source of inspiration for the bulls this quarter.  I will be interesting to see how the market responds as that energy supply begins to burn out.

Action Plan

As anticipated, the Korean worries prevented the Bulls from mounting a rally on Friday.  The good news is that the Bears were also unsure about the weekend and most of them seemed to join the Bulls in taking the day off.  Only the QQQ managed to end the day with a respectable defense of the 50-day moving average while the SPY closed below the 50 for the 2^nd day in a row.  With the threat to the weekend now past the Dow Futures are currently pointing to a huge gap up open of nearly 100 points.

Although the gap up this morning is not that surprising, it’s also something that I don’t want to chase.  Keeping in mind the overall price pattern the morning gap up will still be under significant price resistance on the SPY, QQQ, and IWM.   Always keep in mind that a gap up the perfect setup for a pop and drop or whipsaw price action.  I refuse to chase, so I will be standing aside for 20 to 30 minutes allowing the price action develop.  If the Bulls step in supporting the gap with actual buying then and only then will I consider new long positions.  Until that time I will carefully manage the positions that I held over the weekend that hopefully will benefit from the bullish open today.

Trade Wisely,

Doug

Will Korean tensions keep the Bulls away?

With such strong sell off it would not be unreasonable to think a bounce is in the cards for today.  I would agree however the Korean tensions could make it difficult for the Bulls to buy this dip.  I can tell you that see no good reason to add risk going into this weekend and I suspect many will have the same inclination.  That’s not saying we can’t or won’t experience a relief rally.  I’m only suggesting the possibility exists that it may be a lackluster bounce or that it may not occur all.  Trying to predict a bottom is just a futile and dangerous as it is trying to predict the top.  Wait for proof in price and then react unemotionally with a well thought out plan.

On the Calendar

The Consumer Price Index tops the Economic Calendar today coming out before the market opens at 8:30 AM eastern time.  The consensus is only expecting a gain of only 0.2% with the yearly rate slipping to 1.8 from 1.9 on the last reading.  Declines in cell phone services and fundamental prices including housing are the culprits pointed to as the reason growth in this number remains weak.  At 9:40 AM and 11:30 AM we have Fed Speakers rounding out the day.

The Earnings Calendar will not begin to lighten up dramatic with just under 70 companies expected to report their results today.  At the close yesterday, NVDA topped estimates, but the stock sold off sharply and is indicating a 7% gap down this morning.  That will not be helpful to an already weakened QQQs as we head into the weekend.

Action Plan

The follow-through sell-off yesterday created some significant psychological damage in the indexes.  The SPY, QQQ’s and IWM have also suffered significant technical damage cutting through the 50-day moving average.  Even more damaging is that the SPY broke the uptrend that began in early 2016.  The IWM being the weakest of the indexes fell all the way to the 200-day moving average and is currently indicating it will gap below it at the open today.

Adding insult to injury, the futures are again suggesting a small gap down at the open.  Normally after a sharp selloff such as this, it is reasonable to expect a bounce in price.  However, as we head into the weekend the tensions growing in North Korea, traders may prefer to avoid the risk.  I for one will not be looking for new positions today as I view the weekend risk simply too high for my taste.  Having already trimmed my portfolio ahead of this sell off I will sleep well this weekend.  The market will be open Monday, and there will be plenty of opportunities made available.  Of course, I will be closely monitoring the positions I continue to hold and plan to carry through the weekend.

Trade Wisely,

Doug

Rising uncertainty rattles the market.

The strong earnings rally met with some profit taking and risk reduction yesterday.  The overall trend is still up, but the rising uncertainty with North Korea as we head toward the weekend has many traders reducing risk.  Currently, futures are pointing to a gap down this morning that may threaten price supports at the open.  Should they break, we could see a quick move lower as stop loss orders will likely start to trigger in rapid succession.  The Bulls have been very strong, but this morning will be one of the first tests of their resolve at price supports.  A successful defense by the Bulls could setup some very nice entries assuming you want to add risk ahead of the weekend.  Plan carefully.

On the Calendar

As normal the Thursday Economic Calendar starts the market day with the weekly Jobless Claims report at 8:30 AM Eastern.  Good claims numbers have continued all year, and forecasters see claims rising just slightly to 241K up from 240K last week.  Also at 8:30 AM is the much more important PPI-FD report.  The inflation tracking report has been very flat only managing a 0.1% gain overall on the last reading.  Forecasters are suggesting only a slightly higher reading this month of 0.2% core minus food and energy.  We have a Fed Speaker at 10:00 AM with the Treasury Budget report at 2:00 PM rounding out the day.

The Earnings Calendar is showing more than 225 companies in one of the last big reporting days this quarter.  One of the big reports today will be from NVDA after the market closes.  It will be very interesting to see how the market responds as this earnings season winds down and North Korean uncertainty ramps up.

Action Plan

Thus far the selloff has been very controlled with fear only rising slightly.  At the close of yesterday both the DIA and the SPY held above price supports with the SPY finding enough dip buyers to close near the high of the day.  The QQQ’s also found buyers rallying back up after a somewhat spooky gap down at the open.  The poor beleaguered IWM gapped down and stayed below its gap all day long even though it did manage a small bounce off the intraday lows.  Futures are currently pointing to a substantial gap down as the saber rattling intensified overnight.

Looking through my watch-lists near the end of the day, I found a nice group of very good looking charts.  The temptation to buy the dip was very strong, but I stuck to my rules and decided to wait for follow-through price action.  Looking at the futures this morning, I can once again thank my trade plan for saving me capital.  I will look for new trades today, but with the weekend coming and the looming crisis with North Korea, they will have to be stellar setups for me to take action on them.

Trade Wisely,

Doug

The Bears re-emerged onto the field of battle.

Over the last 2-weeks, the Bulls have dominated the market battle to such an extent it was easy to forget the Bears were even there.  Yesterday the Bears re-emerged demonstrating they still have teeth.  I hope you were watching and prepared.  As of now, this is nothing more than a healthy pullback and the overall uptrend is still in tact however it’s time to raise your caution levels, modify or even restrict your market activity depending on your experience level.  Expect additional volatility in the days ahead.

On the Calendar

The hump day Economic Calendar begins with Productivity and Costs at 8:30 AM Eastern.  Forecasters see nonfarm productivity rising 0.8% and unit labor costs dipping to 1.3% vs. the first quarter’s point of 2.2%.  At 10:00 AM we get the most important number of the day, the EIA Petroleum Status Report.  Oil companies continue having trouble finding their footing even though supplies are declining.  If we were to get a surprise build in supplies, we could see the market to react negatively.  At 1:00 PM we will hear from a Fed Speaker.

We have just short of 350 companies on the Earnings Calendar reporting today.   The bell weather DIS reported after the close yesterday beating consensus but disappointing investors after the announcement of pulling their content from NFLX.  The company has decided to begin their own streaming service.  The stock dropped more than 3% on the news.  Their ESPN unit continues to decline muting the companies overall all performance.

Action Plan

After a sharp rally early in the day yesterday day the DIA reached an exhaustion point profit takers gained the upper hand.  As the DIA began to tumble, all the indexes started giving back gains as I had feared.  The DIA, SPY and QQQ’s left behind shooting star candle patterns.  This pattern is considered bearish and carries much more weight when found at price highs.  However, like most candle patterns the shooting star requires a price to follow-through to the downside to be truly valid.  Currently, the futures are pointing a gap open giving us that follow-through initially but the Bulls may have something to say about that before the day is over.

Saber rattling with North Korea continues to intensify.  The market hates uncertainty, and the situation with North Korea certainly raises that bar.  Another battle in Congress over the debt ceiling is another matter that easily could add to uncertainty levels depending on the games they play this time around.  After such a strong rally these uncertain items could make it challenging for the Bulls to maintain the rally.  At a minimum, I would expect a bit more volatility in the days ahead.  Fast intraday moves could be possible as we try to sort out the details.  Yesterday I reduced my risk and added in some index puts to hedge the possible risk.  Please keep in mind that the sky is not falling.  A pullback is natural, needed to confirm support levels, and what a healthy market does!  At this point, there is no need to panic.

Trade Wisely,

Doug

Nine straight days of record highs in Dow.

Who doesn’t love a strong Bull?  Yesterday marked the 9^th straight all time record highs in the Dow.  The question is how long can this last?  Your guess is as good as mine, but we should prepare for the fact it could end at any time.  Please understand I am not saying a selloff is about to begin or even suggest bearishness.  The overall trend is still up and very strong, and there is nothing in charts right now to suggest that is about to change.  I am only warning about the dangers of complacency.  When the market is extremely bullish, it’s easy to forget that danger could be lurking just around the corner.  Continue to trade long and stay long until something changes but always be prepared with a plan to protect yourself.

On the Calendar

Another very light day on the Economic Calendar today.  The only thing of note is the JOLTS report at 10:00 AM Eastern.  JOLTS tracks job openings which moved lower on the last reading to 5.666 million.  Forecasters for this month expect further declines in job openings for a reading near 5.6 million today.  We have a couple of bond auction today but pretty much wraps up the calendar today.  Even the Fed Speakers have the day off today opposite every other day this week.

On the Earnings Calendar, there are nearly 400 companies reporting today.  DIS is considered a bellwether by many market watchers, so it can be a market moving event when the company reports after the bell today.  Lately, the company has seen declines in subscriptions mostly from its ESPN holdings.  Estimates have placed an earnings target of $1.57 a share target for them today.

Action Plan

Nine days straight up on the DIA with the last six gapping to new highs that have been thus far defended by the Bulls.  How much longer this can continue is anyone’s guess, but we should not be surprised to see a pullback or a consolidation begin at any time.  Yesterday the DIA was finally able to inspire the SPY to participate closing at a new record high.  The QQQ’s also moved higher yesterday but fell short of breaking out and remains under price resistance.  IWM continues to struggle and remains not only under resistance but also under the broken trend.  For the first time in over a week, the Dow Futures currently suggesting a flat to slightly lower open today.

I plan to remain slightly cautious this morning and will likely allow 20 to 30 minutes to pass focusing on price action before making any new trade decisions.  I will be watching to see if the Bulls will continue to support current levels with additional buying or if profit taking will finally begin.  Although I believe the DIA, in the short-term, appears overextended, there is currently nothing in the charts indicating that will change.  That fact, however, doesn’t give me the right to be complacent and ignore the possibility that selling could at any time begin.  As a result, I must have a plan to protect gains as well as my trading capital to avoid emotional decision making in the heat of the moment.

Trade Wisely,

Doug

Momentum continues to carry the Dow higher.

The rotation into blue chip stocks continues to propel Dow higher.  The sheer momentum of the Bulls continues to plow right through the Bears that tried predicting a top.  Although this momentum seems unstoppable at the moment, it is a reason to raise your caution levels.  If the SPY, QQQ and the IWM were participating in this move, I would be much more comfortable.  However, after nine straight days up in the DIA with all the other indexes not going along creates an unnatural imbalance.  Stay with the trend because as of now there is nothing to indicate it is over.  Focus on the price action because it’s there where we will first see the clues of reversal IF it does come.

On the Calendar

We begin this week with a very light Economic Calendar that slowly ramps up for a few important reports later in the week.  Today there are few insignificant reports along with bond auctions and announcements.  Then we have Fed Speakers at 11:45 AM Eastern and 1:25 PM to round out the day.

The Earnings Calendar starts off at full speed today with nearly 225 companies reporting results.  So, remain alert and keep those seat belts buckled as emotionally charged price action continues.  Do yourself a favor and find out when the companies you hold or are thinking of entering report results.

Action Plan

Friday was a light volume choppy day but a push right at the end of the day closed DIA just $0.03 off the high setting another record close.  Both the SPY and QQQ’s remain locked in consolidation while the IWM remains bearish below price support and trend.  Futures once again are suggesting a gap up open with the DIA leading the way.

It’s amazing how only a few companies in the Dow in have been able to hold up the entire market.  This kind of imbalance makes me very nervous and watchful of a reversal.  However, betting against this kind of wild bullishness is unwise as there is no telling how long it could continue.  With this being the 9^th day of the DIA run and the 8^th gap up one would naturally think a top is near a begin to bet against it.  Momentum such can last much longer they anyone expects and may actually gain energy, squeezing out short traders that tired predicting a top.  Thus I will continue looking for long trades, but I will also be willing to quickly capture gains or cut off losses if the price action begins to signal trouble.

Trade Wisely,

Doug

Concerned about DIA over-exuberance?

Are you concerned about DIA over-exuberance?  I must admit that I am becoming concerned because all the bigger indexes are not participating.  I’m concerned that incredible weight that only a few companies in the Dow are lifting could soon reach a breaking point.  Earnings have been driving this move it is entirely possible that it could continue for a while longer.  A tough lesson that I learned many years ago is that the market can stay irrational much longer than I can stay solvent trying to bet against it!  However, that doesn’t mean that I should be complacent, failing to recognize the market condition or having a plan to protect my profit and trading capital.  The sky is not falling, but a storm could be building on the horizon.  I’m only suggesting it’s better to have your umbrella with you than having no protection at all.

On the Calendar

Friday’s Economic Calendar begins with the very important Employment Situation report at 8:30 AM Eastern.  Employment numbers have been very strong all year, but forecasters expect it will slow this month to 178K down from 222K.  They expect the unemployment rate to be 4.3% and the hourly earnings to remain weak at 0.3%.  Also at 8:30 is the International Trade numbers which the forecasters see narrowing to 44.4 billion deficit versus 46.5 last month

On the Earnings Calendar, we have about 100 companies reporting earnings today.  Next week is another huge week of reports with more than 1200 companies reporting so stay on your toes and expect additional volatility.

Action Plan

Every day this the DIA has managed to not only gap up also set new record high prints doing so.  Futures are suggesting we will end the week doing the same, gapping to a new record.  Unfortuinatlyy the SPY, QQQ, and the IWM have not participated with this amazing DIA run.  Only time will tell how much longer this will last, but I must admit that it makes me very nervous because it is such an abnormal market conditions.

There is no doubt that the trend is still up.  However, I’m worried that the DIA tremendous exuberance has set the stage for a huge increase in volatility very soon.  The VIX has been signaling complacency for some time and five straight days of the DIA are gaping up with out the bigger indexes participation signals the same.  While it is true that earnings reports have been very good, continuing to have the DIA lift that much weight seems unlikely.  Please understand that I at not at all bearish on the market.  I am merely pointing out that if the DIA begins to roll over don’t be surprised to see some very fast profit taking and a big spike in volatility.  I will continue looking for long trades but will be more focused on taking profits ahead of the weekend.

Trade Wisely,

Doug

Bull run continues to produce new records.

As this record setting Bull run continues in the DIA, their tenaciousness has proved very impressive.  Setting the sixth new record highs in as many days on the DIA is no small feat.  As impressed as I am with the 30 stocks or the Dow holding up the entire market it also raises a concern.  Unless the other indexes step up and participate soon, I’m concerned the pressure on the DIA could suddenly break.  So come on Bulls get to work in the SPY, QQQ’s and IWM.

On the Calendar

On the Economic Calendar today we start with the weekly Jobless Claims at 8:30 AM Eastern.  Claims have been running steady at historic lows, and forecasters see more of the same expecting claims of 244K this week.  At 10:00 AM we have Factory Orders, and ISM Non-Mfg Index reports.  After back-to-back in May and April consensus expects to see a 2.7% increase in the June numbers on the back of aircraft orders.  Nondurable goods are expected to continue flat with weak pricing.  ISM is expected to remain strong at 56.9 with both new orders and backlogs staying at consistently elevated levels.

The Earnings Calendar is full to the brim with more than 535 companies expected to report today.  With the Employment Situation number coming on Friday morning we would normally see the market quiet and choppy as it waits.  However, with such a huge schedule of earnings reports is reasonable to expect more than normal market volatility.  Make sure you are aware of the reporting dates of stocks that could affect your portfolio.

Action Plan

After the morning gap the Bears went to work trying to take over, but by the end of the day, the Bulls proved to be too strong closing the DIA at a new record high.  Both the SPY and the QQQ’s made significant recoveries from the intraday lows while the small cap index, IWM, continued under selling pressure.

The overall trends clearly remain bullish.  As a result, I will continue to look for long trades in stocks trending in the direction of the overall market.  With so many earnings reports I will be watchful for an extra dose of volatility today.  I will also remain focused on price action.  With the weekend coming and after such a strong DIA rally the possibility of very swift whipsaws or reversals exist.  Please don’t misunderstand.  I am not bearish, suggesting bearishness or even attempting to predict that a selloff is about to begin.  I am merely suggesting it’s wise to consider the possibility and watch price action for clues.  Preparation is always better than making emotional decisions in the heat of the moment!

Trade Wisely,

Doug

Earnings continue propelling prices higher.

So far 3^rd quarter earnings reports have impressed the Bulls and punished Bears that were betting against the rally.  The very impressive results from AAPL earnings continue propelling prices higher in the pre-market with yet another gap up open.  Stay with the trend but always keep in mind at some point there will be profit taking.  Make sure not to get caught up in the hype, drama, and greed.  Have a plan to capture gains if and when the Bears show their teeth.

On the Calendar

The Economic Calendar gets going with the ADP Employment Report at 8:15 AM Eastern.  ADP seems to have lost its mojo over the last several months missing the actual employment numbers significantly.  If this continues and they don’t adjust their metric soon, I suspect it will become a largely ignored report by the market.  Currently, the consensus for the Friday number stands at 173K.  At 10:00 we get the EIA Petroleum Status Report which has been trending lower and helping to support the price of oil.  Let’s hope that trend continues today.  After that, we have a two Fed speakers at 11:00 AM and 3:30 PM.

Another very big day on the Earnings Calendar with more than 400 companies reporting.  So far earnings have provided the fuel for this impressive market rally, and that looks to continue today after the impressive results from AAPL.  Please make sure to check reporting dates of companies that could affect you and your portfolio!

Action Plan

Another day and another record for the DIA gapping up the 2^nd day in a row and holding the gap through the close of the day.  Very impressive display of bullishness indeed!  The QQQ, SPY, and IWM closed the day with muted results, but all in all held up very well considering the overall duration of this current rally.  The futures are pointing to another gap up this morning on the back of the AAPL earnings report.  The tech rich QQQ’s should see a nice pop above resistance today.

With the market gapping up for the 3^rd day in a row I will once again focus closely on the price action for the first 20 to 30 minutes looking for signs that real buyers are supporting price.  I will continue to trade with the trend looking for long positions.  Because the rally is very extended, I feel the need to focus more on protecting profits and locking in current gains.  I am not predicting a profit taking slump in the market. However, I do want to be prepared with a plan if it does occur.

Trade Wisely.

Doug

A wildly bullish Dow gives me pause.

As many of you know, I am always cautious when I see a market gap up to new highs.  With the wildly bullish Dow Index gaping to another record high raises caution flags.  The muted price action of the QQQ, SPY, and IWM means that only 30 companies are trying to lift the entire load.  It is possible, but such a strong gap after major rally could also produce an exhaustion pattern.  Make no mistake, the trend is up, and I will stick with the trend, but I will not chase this gap.  Chasing a gap after a major rally is a kin to playing Russian roulette with a loaded gun.  Avoid emotion with a well thought out plan and have the discipline to follow that plan to protect you from you!

On the Calendar

The Economic Calendar starts August with Personal Income and Outlays at 8:30 AM Eastern.  Incomes are expected to increase 0.4%. However, spending has remained muted only rising 0.1%.  Consensus for the core PCE is 1.4% yearly which is only a 0.1% increase.  PMI Manufacturing Index is at 9:45 AM is expected to come in at a positive but moderate 53.2 reading.  A far more important number, ISM MFG index comes out at 10:00 AM.  It has been very strong this year, and that will continue if the consensus is correct with the expectation of 56.2 print.  Construction Spending is also at 10:00 and is expected to post an increase of 0.5, however, continues to be soft overall this year.

On the Earnings Calendar, there are nearly 280 companies reporting today.  The big news of the day comes after the close when AAPL reports earnings.  With the recent slide in tech, there are those saying the AAPL report is so important it may overshadow the Employment Situation number on Friday!  I’m sure about that but how AAPL reports will likely be critical to market direction.

Action Plan

The Bulls in the DIA managed to hold onto the morning gap but was unable to lift the other indexes.  The QQQ closed below support with a dark cloud cover pattern while the SPY held support but just barely.  IWM tested resistance early in the day yesterday but bears pushed back down confirming resistance but just holding on to the current trend.  So all and all we have 30 companies trying to lift the entire market and making very confusing signals overall.

The Dow futures are wildly bullish this morning suggesting a gap up more than 100 points.  The other index futures are also pointing higher but at this time are not reversing the negative candles left yesterday.  It’s my inclination to jump to the decision that the DIA this morning is an exhaustion gap which could signal the end of this rally.  However, it is always unwise to predict or bet against a strong trend.  My plan for today will be closely watching price action for clues of reversal.  I will stay with the trend until I have evidence of something different.  Watch the potential pop and drop or whipsaw price action this morning and prepare to act if necessary to protect profits and trading capital should a reversal occur.

Trade Wisely,

Doug