High Volatility and Challenging Summer Trading Likely Lies Ahead

Yesterday likely marked the beginning of challenging summer trading with high volatility tossed in for goo measure.  As a general, rule summer markets are difficult to trade with lots of choppy price action.  As it turns out, summer seems to have come late this year dispelling the old saying, sell in May and stay away.   The other challenge we could face is that the market may be a significant market high.  A correction that many would say is way overdue.  Let’s avoid all the predicting and just focus on price action because the clues will be there if we are unbiased.  Also, remember that a market pullback is not a personal attack on you so don’t fight it.  Think of a correction as a Mega Sale at your favorite store where we could get the chance of getting much better deals on quality products.

On the Calendar

The last trading day in June the Economic Calendar only has three items of concern.  We start off at 8:30 AM Eastern with the biggest number of the day, Personal Income, and Outlays.   The consumer is expected to slow down in May as is the personal income however consensus suggests that food and energy will rise.  Thus, the overall number is expected to come in unchanged at 1.5%.  At 9:45 we get a reading on the Chicago PMI which has been steadily increasing the last four months to 59.4 but the forecast for today indicates a pullback to 58.2.  Last but not least we get a reading on Consumer Sentiment at 10:00 AM which fell back 2.6 points in May to 94.5.   Consensus suggests it will hold stable at that number for June.

The Earnings Calendar is giving us a break today with only two companies reporting, EROS and OSN.  A big winner after the bell yesterday was NKE.  It will be nice if this old friend of mine gets back in a trend because it has proved to be an excellent money maker in the past.

Action Plan

Yesterday was an ugly day for the market breaking support levels and creating significant technical damage to the index charts.  The end of day rally was a sweet relief and with the futures pointing to a gap up open some of the bearish pressure will be released.  Just remember V-bottoms are rare and we should expect yesterday’s lows to see a retest in the near future.   We will now have to tune into possible failure patterns at or near resistance.

Today my plan is to take the day off!  We can expect after the morning rush to see volumes drop off quickly as may traders will be starting the 4^th of July Holiday early.  I will also not be trading on Monday.  Tuesday the market is closed, but I will be back in the saddle Wednesday morning rested and ready for the challenges of summer trading.

Trade Wisely,

Doug

Bullish Follow-through is vital.

With the surprising strong move yesterday that it is vital we see some bullish follow-through price action today.  There is no question the market as of late has proved it is capable of producing big whips in price, but the ability to follow-through is an important element the market has lacked the energy to do.  Will today be different?  Only time will tell.  Another big question to ponder is how much risk are you willing to take with holiday trading likely to begin tomorrow.  As for me I plan to trade smaller than normal positions and will take profits quickly if I do decide to step onto the playing field.

On the Calendar

Thursday begins with a significant number on the Economic Calendar.  At 8:30 AM Eastern we get a reading on the 1^st quarter GDP.  If there is one number this week with the power to make a break the market, it would be the GDP number.  Forecasters expect the number to come in unchanged at 2.2%.  The question is can the market support these record high prices if the GDP continues show par growth in the economy?   Also at 8:30 we will get the Weekly Jobless Claims which are at historic lows and consensus suggests this week’s reading will not change this bullish number.

Other than that, we have a Fed speaker at 1:00 PM and several non-market moving events to round out the day.   On the Earnings Calendar, we have 35 companies reporting today such as AOBC, RAD, NKE, MU and CAG just to name a few members should be aware of as they plan the day.

Action Plan

Yesterday was a surprising whip back up on the back of easy money policy in Europe.  The VIX is once again testing historical lows and raising the concern of complacency.  The SPY is now right back in the narrow range chop zone where it has proved to be very difficult to trade due to the multiple reversal signals it has produced.  The DIA and the IWM are looking strong yet still closed under high resistance.  The QQQ’s had an impressive day holding support, but the overall the index remains in a downtrend and price is still below resistance.

As you plan the day keep in mind end of quarter window dressing could still be in play.  We must also consider the 4^th of July holiday on Tuesday and the effect that will likely have on volume moving forward.  I would expect Friday and Monday to very light and choppy trading days so plan your risk accordingly.  Friday and Monday I have decided that I will be taking off to enjoy my family during the holiday.  Of course, I will continue to write the morning note and produce a morning video but other than that plan to be gone.  Consequently, the RWO session for Friday and Monday has been canceled.  With the market closed on Tuesday well will get back to work with regular schedules on Wednesday morning.

Trade Wisely,

Doug

Price Action Favors the Bears, But?

Price action certainly favored the Bears yesterday as the market sold off into the close and smashing through support levels.  Normally we would expect to see more selling at the open today, but this choppy market is far from what I would call normal.  Whipsaws can happen in either direction, and we certainly know this market has the willingness to whip.  Also, keep in mind the possibility we could see a little end of quarter window dressing as we wind down the week.  I will continue to expect very choppy and whippy price action so keep a close eye on the price action.

On the Calendar

Hump day begins with the International trade in goods report before the market opens at 8:30 Am Eastern.  The April number deepened the deficit by 3.5%, but the consensus is expecting a slight improvement for the May number.  At 10:00 AM we get a reading on the Pending Home Sales Index which is expected to improve by 0.5% this month.  At 10:30 we get the EIA Petroleum Status Report which will likely be most watch number of the day.  Supplies have been in decline but not fast enough to improve oil prices just yet.  A continued draw down will be important for the overall market.

On the Earnings Calendar, we have 24 companies reporting today.  MON and PIR are among those reporting and may be the most noteworthy for our members.  It is also wise to keep in mind as the end of the quarter approaches watch for the possibility of window dressing which could begin at any time.

Action Plan

The afternoon selloff yesterday made a mess of the index charts.  The SPY is very close to testing the 50-day average while the QQQ’s closed below the 50 for the first time this year.  The DIA is currently the strongest of the indexes failed price support yesterday as did the IWM painting a pretty bleak picture.  However, we are close to the end of the quarter which is often the time we see the institutions do a little window dressing before they close the books.  Logic would suggest we see more lows today, but we should keep an eye our for a possible bounce that could begin at any time with that window dressing in mind.

My SPY hedge position at the end of the day was showing a very nice overall gain due to yesterday’s selling.  As this position is entering its heavy Theta Decay period, it would be in my best interest to exit the position very soon.  I will be watching the SPY closely this morning with that in mind and may take the profits today.  Before adding any new trades, I will need to see some buyers stepping I to support current prices.  I must also start watching for stocks setting ups short trades and begin building that list to prepared if we start to see a full on the shift in the overall market trend.

Trade Wisely,

Doug

Cash is a position often underutilized.

As short-term swing traders, we often get caught up in the idea that every day is a good trading day.  Yesterday should have proved that idea to be untrue.  Sitting in front of our computers, we get bored and feel the need to make trade decisions even when the market is proving to chop up our accounts.  The problem is, most traders underutilize the decision to remain in cash.  Cash is a position, and in times like this, it can be the best possible trade decision.  If you find yourself tired of getting chopped up in this whippy price action losing back to the market your hard-earned profits, perhaps it’s time to stop trading.  There is an old saying, if you find yourself in a hole then stop digging!

On the Calendar

Tuesday begins with the S&P CoreLogic Case-Shiller number at 9:00 AM eastern time.   CoreLogic is a home price index tracking monthly changes in real estate values.  Gains so far, this year have been strong, and forecasters see the April number increasing by 0.6%.  I wonder how much longer we can see prices increase while real wage growth continues to lag way behind.  At 10:00 AM we get a reading on Consumer Confidence.  Customer attitudes on the economy have been falling back from post-election highs.  Consensus suggests yet another move lower this month.  Although these reports are important, they are unlikely to move the market unless they issue a number that surprises the market.

We have 2 FED speakers during market hours today with one of them being Janet Yellen herself at 1:00 PM.  On the Earnings Calendar, we have 20 companies reporting earnings.  A couple of note that members have been trading are KBH and DRI.

Action Plan

My warning of caution with the gap up open yesterday turned out to valid as the market issued a very cruel whipsaw to those who chased in emotionally.  The DIA clung to price support, but the SPY’s reaction to price resistance pushed the index back to lower range of the chop zone, now in its 18^th day.  The QQQ left behind the most bearish pattern of all the indexes with a dark cloud cover pattern right at resistance.  Surprisingly, IWM turned in the best performance of the day resisting sellers and closing just above resistance levels.

Futures are pointing to a slightly lower open but not nearly as much as I would have expected based on yesterday’s performance.  I think there is a very good chance we remain stuck and very choppy.  Yesterday should be yet another proof how dangerous and potentially damaging to your account choppy markets can be.  I will continue to exercise caution favoring capital perseveration over risk until the price action shows improvement.  For me that means more standing aside watching and waiting.  When I do trade, they will be smaller than normal positions sizes.  Always remember Cash is a position!

Trade Wisely,

Doug

SPY opens its 17^th day inside a 3 point chop zone.

At the close of Friday, there were bullish signals popping all over the place with when the Bulls began to push the last 30 minutes of the trading day.  However, the futures popping inspiring the emotion to chase let’s keep in mind that the SPY even with a gap up open will still be within the same 3 point range it has chopped in for 17 days.  Could this be the bullish move that breaks us out?  Yes, but it could also be just another setup for a whipsaw.  Try to avoid the urge to chase and closely watch the price action.  Wait for clues that real buyers are stepping in after the open and keep in mind that the SPY will still be trading near the upper resistance of the chop zone.

On the Calendar

We get the last trading week in June kicked off with the Durable Goods Orders at 8:30 AM Eastern time.  Goods orders have only managed a produce a 1/10^th monthly growth this year.  The April reading marked a monthly decline of 0.7%.  Consensus for May is suggesting another decline of 0.4% although ex-transportation orders may show growth.  Other than that there are a couple of insignificant reports and a few bond auctions to round out the calendar.

On the Earnings Calendar, there are only 14 companies expected to report results today.  Remember this is the last week of the 2^nd quarter, so we will soon be right back into the thick of heavy earnings reports soon.  When planning options trades, it is important to upcoming earnings part of your consideration.

Action Plan

Friday saw another day of indecisive price action but the last hour left us some important clues as the Bulls rushed in at the end of the day.  That bullish action appears to have carried over to the pre-market futures which currently indicate a sharp gap up at the open.  As you know, I am always cautious about gap up opens at or near market highs due to the possibility of whipsaws.  I want to see real buyers stepping in after the open not just the market maker pump that can be nothing more than a trap.

Friday left behind some very good looking bullish chart signals.  Two, in particular, will have my close attention at the open.  WYNN and BSX are both possible trades this morning if they don’t gap up to far and if this futures bullishness translates to buyers stepping into the fray.  Let’s keep in mind that the SPY has chopped in a 3 point range for 17 days.  The expected gap up this morning will still be within this choppy range.  What that means to me, is to avoid the whipped up emotion created by the pre-market futures and stay focused on price action.  There is no reason to rush or chase into the market when all the early blustering opens in the day within the chop zone.

Trade Wisely,

Doug

Just 30 min. of price action spoils the day.

The slight push higher yesterday lifted spirits of traders yesterday, and I can imagine many traders rushed in an attempt to pick a bottom.  Slowly they were rocked to sleep by the light volume back and forth afternoon choppy price action.  Then in the last thirty minutes of trading, the rug was pulled out from under them.  Unfortunately, this is the nature of price action around possible market highs.  The discipline to stand aside is tremendously difficult learn.  We want all days to be good trading days, but the fact of the matter is they are not.  Sometimes doing nothing is the very best trade one can make.

On the Calendar

On Friday’s Economic Calendar we have a two important number to watch.  First, at 9:45 AM Eastern we get the PMI Composite number which has been moving higher this year.  However, expectations for today it that we see PMI decline.  I doubt it will be a big market mover unless the number comes in sharply lower from May’s 52.7 reading.  Keep in mind anything above 50 is growth.  At 10:00 AM we get the New Home Sales Report which last month declined sharply.  Today consensus is suggesting an increase to 590K or better.  After that, we have three Fed Speakers needing to pontificate on interest rates.

We get a little rest in the Earnings Calendar today with only six companies reporting quarterly results.  BBRY which was on the list yesterday must have needed a little more time to finish their report because it moved to today before the bell.  I only bring that up because I know there are several members watching the stock.

Action Plan

After attempting a rally yesterday, the overall market whipped lower in the last 30 minutes of trading wiping out earlier gains. Only the IWM managed to hold on to a positive close.  The good news is that the DIA and SPY continued to support before the end of trading.  It is wise to remember just how quickly whipsaws can change the perception of the day in a short period.  All can appear positive, but minutes later that rosy fragrance suddenly smells like something that came out of the south end of a northbound cow.  Ugg!

Futures are currently suggesting a lower open that may bend price support to breaking points if traders start piling on at the open.  Of course, the opposite is also possible.  Opening lows could set up yet another engineered whipsaw attracting dip buyers.  Although the overall trends are still up, I will have to stand aside until I see evidence of buyers moving in before looking for new positions.  Friday is profit day so protect those gains by taking them to the bank.

Trade Wisely,

Doug

Choppy price action slightly favors the Bears.

Yesterday the Bears had a tiny edge as the market moved south with choppy price action.  It’s very important on to get lulled to sleep during slow and grinding markets.  Big whips remain a strong possibility around index highs.  Also, keep in mind that summer price action is often light on volume making it even more challenging to trade.  Stay focused on price, stick to your rules and strive for your goals.  Everything else is just distracting noise.

On the Calendar

The lite Economic Calendar continues today with the weekly Jobless Claims report at 8:30 AM Eastern.  Claims have been tracking lower all year pointing to strong demand for labor.  This week the forecasters expect only a tiny bump up from last week but still very low overall.  After that, a 10:00 AM we have a Fed speaker and a bucket full of bond announcements that will largely go unnoticed by the market.

On the Earnings Calendar, there are 27 reporting earnings today to be aware of if you are holding or thinking of entering them as new positions. BERY is one that many were watching yesterday that reports after the bell.

Action Plan

DIA, SPY, and IWM all dipped lower yesterday with slow and grinding price action.  As of now, I would say no technical damage to the charts has occurred.  The VIX, although just slightly higher continues to show no fear of a breakdown and remains near historic lows.  The QQQ’s managed to close higher yesterday despite the weakness of its fellow indexes.  My guess is the burst of bullishness comes from the positive earnings seen in companies like RHT and ADBE.  Keep in mind that the QQQ’s remain under price resistance and still has a lot of work to do if it intends to breakthrough

Futures are pointing to a slightly lower open this morning.  I’m expecting that choppy and whippy price action will continue today.  If the Bears don’t soon show some strength breaking below supports then start watching for a bounce.  I will be looking for new trades, but I continue to plan to keep them small due to the choppy price action.

Trade Wisely,

Doug

Another day, another reversal.

On the close of Monday, it looked like the market had picked a direction Tuesday delivered another potential reversal signal.  This kind of price action is not uncommon at or near market highs, but that doesn’t help us as traders when we continually receive reversal patterns.  Ond day everything points to Bulls in control, but before you know it, tide shifts and Bears appear to gain control destroying your confidence and chopping up your account.  The only way to avoid this to stop trading but that’s not something most of us want to hear.  We want it, and we want it NOW!  As for me, I will continue to trade, but I plan to trade less only taking the best fo the best setups.  I also intend to trade smaller than normal positions to diminish my overall risk in the event I’m whipped out, by yet another reversal.

On the Calendar

The hump day Economic Calendar has a couple of important reports for the market to chew on this morning.  First off at 10:00 AM Eastern time we get the Existing Home Sales number which was disappointing in April.  Today the consensus says we should see a rebound to a 5.550 million annualized rate.  There some concern that rising home prices might affect this number going forward.  At 10:30 AM is the EIA Petroleum Status Report.  The number last time continued to show a decrease in overall supply, but it was not enough to stop the decline in oil prices.

On the Earnings Calendar, we have 14 companies expected to report results today.  There two big tech companies MU and ORCL that report after the close.  Both companies will be important to the QQQ’s index to heal some of the technical damage it has suffered recently.

Action Plan

Yesterday saw light volume choppy price action most of the day.  At the end of the day, the Bears gains strength pushing the SPY lower nearly filling the entire gap left behind on Monday.  The DIA remained stronger avoiding a bearish engulfing candle by a tiny margin.  With the reports from ADBE and FDX coming in strong after the close I was expecting to see the futures in positive territory, but as of now, they are showing slight weakness.

Adding new risk has been difficult as the market chops and whips around.  Just when you think the all clear has sounded and we get price action that raises a lot of concerns.  I will continue to look for new trades, but until I see this market settle down, I plan to take smaller positions.  If I’m not whipped out, I can always add to the trade later.  Remember activity does not equal achievement.  Trading less or not trading at all during choppy times protects your capital.

Trade Wisely,

Doug

Fearless market gaps to new record levels.

Price action is showing amazing confidence as the fearless market gapped up and ran to new record levels yesterday.  I must admit at these levels leaving gaps behind gives me pause, but the overall direction of the market is clear.  The Bulls are in control, so I will continue to trade with the trend until price action provides clues to the contrary.   Naturally, we all have a bias but it is the successful trader that sets it aside allowing the market to work for them rather than fighting it.  We all want to be right but would you rather be right or profitable?

On the Calendar

Another light day on the Economic Calendar.  There are 3 Fed Speakers as some bond auctions but no economic reports of note.  The Earnings Calendar shows 21 companies reporting today including a few important name like ADBE, FDX, RHT, and LEN.  FDX can move the market because many feel it is an indicator pointing out the health of the consumer.  The report from FDX will not occur until after the market closes today.

Action Plan

The DIA displayed amazing strength yesterday gapping up and continuing up to new record highs once again.  Also, the SPY dramatically improved, leaving a gap behind and managing a new closing high.  The QQQ’s and the IWM lagged behind but managed to close near the high of the day.  Fear once again is extremely low and only about 1 ½ points from new record lows.

There is no question that the Bulls are in control although volumes were slightly light yesterday.  It is as if the market is melting up without concern.  I have to admit that makes me a little nervous but all I have to do is to continue to trade with the direction of the overall market.  The trend is up, so I will continue looking for long positions as long as that continues to be true.  However, at these price levels, it is important not to become complacent.  So I will be very focused on price action and prepared if clues of weakness start so show.  Although I will be trading long, I will also increase my aggression when it comes to capturing gains.  Swift reversals can occur around market highs.  I will not allow winning trades to become losers.

Trade Wisely,

Doug

The Bulls maintain control.

There is no question that Bulls maintain control when looking at the daily index charts.  The DIA in particular looks like smooth sailing with nothing blue skies ahead.  Although calm on the surface, we all know there has been a lot of turbulence.  Big price swings intra-day has made it a very challenging market for swing traders.  With VIX retesting historical lows the only the DIA reaching out for new highs with a gap up open I want to stay calm and avoid chasing at the open.  I am not suggesting a whipsaw will occur but I want to point out the potential exists.  I will need to some follow-through buying after the gap this morning before making any new decisions on risk.

On the Calendar

A very light day on the Economic Calendar today.  Other than a few bond auctions we hear for a Fed speaker at  8:00 AM eastern and then another after the market close at a 7:00 PM.  There are only five companies reporting earnings today none of which are likely to move the overall market.

Action Plan

Last week’s volatility keeps the caution flags flying high.  Three times last week the market made sharp moves lower giving everyone the reason for concern.  However, with the DIA leading the way with whippy intraday price action it always managed to recover.  The pre-market futures are very positive this morning pointing to new record prints for the DIA.  The SPY, IWM and QQQ’s however still have price pattern that less than impressive and should give us reason look carefully before leaping.

As you know, I am always very watchful of potential whipsaws price action at or near market highs.  With the DIA breaking out and all the other indexes lagging behind it would seem to be the perfect setup for that possibility again.  So keep and close eye and avoid chasing at the open.

It is also very important to avoid bias and just follow the market.  The DIA is displaying bullishness, and there is currently nothing suggesting it is ready to reverse or even slow it’s progression higher.  On the other hand SPY, IWM due suggest weakness is possible.  The QQQ’s has suffered some major technical damage that as has a lot of work to do before it cold be considered bullish.  I will be looking for new long trades today, but I will not chase right after the open.  I will need to see that real buyers are stepping and that the gap up is not just another institutionally created pump and dump.

Trade Wisely,

Doug