Friday’s whipsaw has caution flags flying high.

The Friday afternoon whipsaw was simply Nasty!  It left traders counting up losses on stopped out trades where just a couple hours earlier they had been looking at gains.  It also quickly spiked fear and once gain reminded us how dangerous complacency becomes at or near market highs.  At a minimum, Friday was a warning that we must always be at the top of our game and a “safe” market does not exist.  As for me, I will be approaching today’s market with extreme caution and a very watchful eye on price action.  Was this a one-off event or a warning of trouble ahead?  Only time will tell.

On the Calendar

The Economic Calendar begins with a whimper today but will roar like a lion by mid-week when the FOMC comes front and center.  Today, however, we only have a few bond auctions and the Treasury Budget that comes out at 2:00 PM Eastern.  Although it should be shocking that May is expected to produce an 87.0 billion dollar Federal deficit, it will pass without notice.  In truth 87.0 billion is a slight improvement over last years numbers.

On the Earnings Calendar only ten companies reporting earnings today none of which are overall market movers.  Always remember to check earnings on each and every stock you hold and are thinking about purchasing.  There is no excuse for being surprised by an earnings report.

Action Plan

Friday’s wild price action ride amounted to a very nasty whipsaw.  I ended up closing a couple of positions in response to preserve some small gains.  Caution lights began flashing all over the place as I looked through charts and that caution remains this morning.  Futures are currently pointing to a slight gap down open today but what we will have to pay very close attention to is how traders react after the open.

The VIX after hitting a new low record low Friday morning rather suddenly shot up 28% but settled up only 14% by the close.  That kind of volatility is difficult even the most experienced traders.  As a result, I am suggesting that new or struggling traders should stand aside, watch and wait.  Price action like this could turn out to be nothing, or it could be a warning of turmoil ahead.  I will manage my current positions, but I will be waiting for good price action clues before even considering new risk.

Trade Wisely,

Doug

Shooting stars and doji’s abound.

As I looked through the charts last night, I saw a lot of shooting stars and Doji’s at highs which are considered bearish.  I also saw a lot of indecisive doji’s at highs and in consolidations.  Both of these conditions would warrant significant caution. However, there was also a lot of very bullish patterns and some fantastic looking charts.  What’s a guy to do?  Yesterday was a very emotional day for the market due to the congressional hearings.  There were several full reversal whipsaws during the day making charts very convoluted.  As of now I’m staying bullish on the overall market and may even consider adding some risk ahead of the weekend, but I will give the market a good 30 minutes to an hour to settle in before making any decisions.

On the Calendar

A very light Friday on the Economic Calendar with only a couple reports with little to no significance.  On the Earnings Calendar, it’s much the same with only eight companies reporting.  None of which should be market moving.  Truly the quiet before the storm, because next week we have one of the fullest calendars of market moving reports I’ve seen in a long time.  Of course, the biggest is the FOMC decision on interest rates.

Our news filled day yesterday turned out to be a non-event the U.K. elections could create some turmoil abroad and is worth noting.  Long story short, the Prime Minister lost so may key seats it would normally force her resignation.  However, she is refusing to resign and will now seek the approval of the Queen to form a government.  Let the drama begin!

Action Plan

As you know Friday is normally my day to take some profits and a day I usually restrict myself from adding new positions.  However, with the decks, somewhat cleared for the President to proceed with his plans; And the house passing the bill that removes much of the Dodd-Frank debacle I’m thinking of adding risk.  The big banks began a rally yesterday, and I would expect that to continue today.  Futures have the chances of that the FOMC will raise interest rates next week above 95% which should help the banks even more.  Hince, I will be looking for an entry in the financial sector.  Stay tuned.

Trade Wisely,

Doug

Is there a storm on the horizon or just a lot of hot air?

Today’s market is filled with news-driven events most of them political in nature.  Could there be a storm on the horizon or will it be nothing more than a lot of hot air blowing around?  Who knows but one thing for sure is that it is likely to be great fodder for Saturday Night Live skits!  I would recommend caution with the futures pointing to a gap up open ahead of all the events about to unfold this morning.  Anything is possible, and I think it would be wise to plan for whippy price action today.  As the drama is acted out on both sides of the political isle swift price moves are possible.  Although I will looking for new trades, I have no desire to compete with a three ring circus.  As a result, so I will be waiting for price action to settle and show me the way.

On the Calendar

Today we have a lot for the market to chew on, but most of it is not on the Economic Calendar.  First up we have the weekly Jobless Claims at 8:30 AM Eastern.  Claims continue to be unusually low pointing to a strong labor market.  The positive trend is expected to continue with the number released this morning.  In fact, it would likely have to come in as a huge surprise to move the market.

On the Earnings Calendar, there are 36 companies expected to report today.  Marke sure to check current holdings and new purchases for potential earnings reports.

The big events will be in the news today.  First off we have ECB decision this morning with a speech following by Draghi.  Obviously, this can move the market if there is something unexpected revealed.  Later today at 10 AM the circus act in Congress will begin the testimony from Jame Comey.  The market saw a slight rally yesterday when details of his interactions with the President were released.  It would appear that there is no smoking gun despite all the rhetoric.  Of course, if something groundbreaking said during the testimony the market could react wildly so plan accordingly.  There is also the possibility of market turmoil with the parliamentary elections in the U.K. and their impacts on Brexit.  A wild and wooly day to be certain.

Action Plan

With so much potential market moving news this morning I want to be very cautious this morning.  Currently, the futures are pointing to a gap up open setting the stage for a whipsaw price action ahead of all the news.  If something unexpected happens to be revealed in the Comey congressional dog and pony show swift price moves are likely to occur.  Anything is possible today so have a well thought out plan for current holdings as well as new positions you are considering.  I will be looking for new trades, but I will move slowly as these events unfold.

Another issue to be mindful of is the unusual price action of bonds moving higher with the market.  Normally bonds would decline as the market rises, but right now bonds have been gaining ground right alongside the overall market.  I’m not suggesting this is signaling impending doom, in fact, I don’t know what to make of it, but I do think it requires our attention.  Perhaps it’s nothing, but it is odd and may be providing clues to growing market fears.

Trade Wisely,

Doug

Productive price action as the market rests.

Thus far the pullback/rest is showing productive price action in my opinion.  Healthy markets commonly rest or pullback to test price supports.  As of now, this resting pullback is not showing signs that the bears are taking over so far.  Of course, that can always occur very quickly around new market highs.  As the overall trend is still up will remain bullish, but I also want to be prepared in the event the Bears decide its time to feed.   Always keep in mind that whipsaw price and swift reversal are common around potential market tops.  Although fear is essentially not present at the moment we all know how quickly that can change so be prepared.

On the Calendar

The only thing of significance on the Economic Calander this hump day is the EIA Petroleum Status Report at 10:30 AM Eastern.  The last three reports have shown a decline in supplies, but the news lately from US producers suggest they have no intentions of slowing down.  As a result oil prices and oil companies have continued to show weakness.  Today’s number could easily move if this market.

On the Earnings Calendar, there are 29 companies expected to report earnings this morning.  A quick scan of those on the docket there is none that would normally move the market.  However, if you own or happen to be considering one of these companies, please understand the implications.

Action Plan

The market having rested a couple of days and pulling back to an area of possible support is healthy price action in my opinion.  Futures have been dancing around the area of a flat open this morning.  I think the Oil status number could be very influential on the market direction today.  A build in supplies would be negative while a reduction in supply is positive for oil prices.

I will, of course, attend to current positions first but will continue looking for new long positions staying with the direction of the overall market.  I will be very watchful for whipsaw price action at these levels and will exercise caution on new trades until I see the Bulls picking up their activity.

Trade Wisely,

Doug

Price action indicates the Bulls are firmly in control.

Price action clearly shows that the Bulls are large and in charge.  Not only did the step in defending price support but they smashed through the ceiling setting new records.  On this profit taking Friday, I plan to do some selling into this strength and going to the bank ahead of the weekend.  Futures are suggesting a strong gap up this morning so be watchful of whipsaws that are common at price highs.  As a personal note, I am still very concerned about the potential effect of complacently with the VIX near historic lows.  Although I will be taking long, I will also be on guard and prepared if this wildly bullish enthusiasm happens to reach an exhaustion point.

On the Calendar

Normally I would say this morning we finally get the number the market has been waiting for, The Employment Situation report.  However, the market seems to be waiting for nothing with the stellar performance of the Bulls yesterday, and the huge gap up the futures are expecting this morning.  None the less the 8:30 AM Eastern Employment Situation number is a critical indicator of economic health.  Consensus suggests another very strong number of 185K jobs created and the unemployment holding at historic lows of 4.4%.  In focus today will be the average hourly earnings which can provide clues to inflation.  Forecasters say inflation is not on the rise expecting the hourly earnings to remain week at 0.3%.

International Trade also comes out at 8:30 AM and is expected to show the trade gap widened sharply in April which would be an economic negative.  Also on the docket are two Fed speakers to round out this big week of data.  We have a very light Earnings Calendar today with only six companies expected to report earnings.

Action Plan

The Bulls are in control and appear to be wildly strong pushing the DIA to a new closing record high while the SPY and the QQQ once again broke to new records.  Remaining a bullish and staying with the overall trend of the market has once again proven to be profitable.  Having said that this no fear market still gives me the willies!  I will continue to trade long but because I do fear complacency I will remain laser focused on price action for clues of trouble.  My job is to follow price not predict so that I will do exactly that.  Friday is profit day, and I do plan on taking advantage of the strength of the market and take profits ahead of the weekend.

Trade Wisely,

Doug

End of Day Rally Inspires Cautious Optimism

The end of day rally yesterday was nice to see as the Bulls continue to defend price support.  There are many that will point to the hammer candle patterns as signs of bullishness, and they could very well be correct.  However, let’s not forget that the same candle pattern can also ba a Hanging Man because of its placement near all-time highs.  Personally, I want to be optimistic that the Bulls are ready to push higher, but I must continue to prepare for the potential reversals.  Remember price swings can happen very quickly at or near potential tops.  Intraday whipsaw price action is common as highs are tested so it’s wise to be ready for additional volatility when planning new positions.

On the Calendar

Today is a busy Economic Calendar with reports that do have the ability of move the market.  It starts off with the ADP Employment Report at 8:15 Am Eastern.  The ADP number last month missed the mark calling for more jobs growth than actually showed up.  Today they the number is expected to be between 170k to 177K jobs created.  At 8:30 AM we receive the weekly jobless claims which have been tracking at 40-year lows.  The PMI Manufacturing Index comes out at 9:45 AM.  PMI is expected to come in with a very strong reading of 53.0 this month.

One of the heavy hitters this morning is the ISM MFG Index number at 10:00 AM.  Consensus suggests the ISM will come in steady and strong with a reading around 54.6.  Construction Spending numbers also at 10:00 AM have been tracking flat this year, but today forecasters are expecting an improvement.  Last but not least is the very important Oil Status Report.  If we want the market to continue marching higher, we will need some help from declining surplus supplies.  There are 45 companies are expected to report earnings today.

Action Plan

The end of day rally yesterday was inspiring but fell just short of providing bullish confidence.  I will approach the market today with some cautious optimism.  Futures are currently flat, but with all the morning economic reports quick price swings will be possible.  We must also keep in mind that the market may decide to simply wait for the Employment Situation number.

Trade Wisely,

Doug

Price action indicates fear of reversal is extremely low.

Although price action yesterday lacked energy it continues to suggest there is no fear.  QQQ’s continued to dominate holding up all the other indexes and marking out yet another record high.  VIX the so-called fear index is once again testing prices near historic lows.  Overall market trends remain bullish, so I will continue to seek long positions but want to guard against complacency.  Always be mindful around market highs that reversals are possible and can develop swiftly.  Maintain focus on price action and be prepared to act no matter the direction avoiding personal bias.

On the Calendar

The hump day Economic Calendar starts will the Chicago PMI at 9:45 AM Eastern followed shortly after by Pending Home Sales at 10:00 AM.  The Chicago PMI has been tracking strongly above the mid-50’s for several months in a row.  Although consensus is expecting a slight pullback this month, the should remain over 57 suggesting economic strength.  The Pending Home Sales Index fell last month, but forecasters are expecting a rebound this month.

This afternoon at 2:00 PM Eastern we get another reading of the Federal Beige Book.  We will also hear from two Fed speakers today.  One at 8:00 AM and the other well after the market close at 7:30 PM.  On the Earnings Calendar, there are 40 companies expected to report today.  Although there is no market-moving earnings report, it is still important to continue checking before entering new trades and managing existing positions.

Action Plan

Yesterday’s light price action was as expected, but there was notable strength in several tech sector stocks.  QQQ, once again claimed new record highs while the other indexes lagged behind on anemic volume.  Futures has fluctuated this morning between negative and positive readings.  I am hoping to see slightly more energy today but will continue to be very picky until I see buyers actively stepping in at these levels.  I will continue to remain bullish if the uptrend continues to hold.

Keep in mind that with all the data points building toward the big Employment Situation report on Friday, that light volume choppiness is possible.  Although I want to trade with the direction of the market, I want to be mindful not get overly long until we see price action proof that new support levels have buyers defending them.

Trade Wisely,

Doug

Sell in May and go away? Not so much!

This year those that followed the old axiom, “Sell in May and go away”; missed out on big time.  Fear of a sell remains at near record lows, and it seems even the smallest selloffs attract dip, buyers.  Nothing about this year has so far has qualified as normal.  As a result, we must remain very focused on price action clues and prepared for anything.  That means don’t become complacent thinking that the market it too strong to sell off because that is a mistake that can remove all your profits for the year very quickly.  If buyers continue to show strength at these levels, we must also be ready to act.

With no major news events over the holiday, I would expect a light volume day as many traders will have planned extended vacations.

On the Calendar

Although this is a short week, the Economic Calendar is full of very big reports.  It kicks off the today with Personal Income and Outlays at 8:30 AM Eastern.  Consumer is spending is expected to see an improvement over last month, but consensus suggests personal income will remain soft.  At 9:00 AM we get the S&P Case-Shiller numbers followed by the Consumer Confidence reading at 10 AM.

Housing demand has been extremely strong this year bu the Case-Shiller number is expected to soften from 6% to 5.8%.  Consumer Confidence is also expected to retreat ever so slightly today but continues to remain very strong and near 20-year highs.  There are only 33 companies on the Earnings Calendar today, and there are none that would likely move the market.

Action Plan

Although it is likely to just a little more price action today, then we saw last Friday I am expecting much.  There were not any major new events over the holiday, and the evil doers of the world behaved.  Futures are pointing to a slightly soft open, but that should not be a surprise after last week’s breakout.  My plan is of course to manage my current positions, but I will need to see some good price action before concerning myself with new trades.  Ultimately I want to see the overall market test and hold the breakout of last week before getting too excited about adding new risk.  Historically June is a month that is flat to just slightly positive.  However, there is nothing about this year that has been normal, so we need to prepare for that fact that anything is possible.

Trade Wisely,

Doug

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