Beware the Green Eyed Monster!

The Green Eyed Monster of Envy can destroy your trading!  Last night I was talking with a fellow trader that was very disappointed with their trading.  As we progressed through the conversation, it became clear that his disappointment and frustration was self-inflicted.  Although he had turned the corner from a consistently losing trader to a net winning trader, it was not enough.  Like all of us, he wanted more.

As a very competitive person he was comparing himself to other traders and the results they were posting.  Envy was destroying his success!  He was ready to quit trading because of the frustration even through his account was growing.  Although we all work to help each other improve as traders in the trading room, trading is a single person activity.  We all start from a different place, and we all have different goals.  Comparing yourself to another trader is like comparing apples and oranges.

A trader must compete with themselves not others.  Your goal should be to see improvement in yourself and your trading account.  A good place to start is by setting small achievable goals for each week or each month.  Record your results.  If you only made $10 last month that is a Huge Improvement if you have been a losing trader!  If in the next month you see a gain of $15 that’s a 50% improvement over the prior month.  Small incremental improvements build confidence and over time builds big accounts.

On the Calendar

Today on the Economic Calendar we have the Case-Shiller numbers at 9:00 AM Eastern followed by New Home Sales and Consumer Confidence at 10:00.  Although they are all important, the big number of the day is the New Home Sales and the one most likely to move the market.  Earnings are starting to ramp up with 190 companies reporting today.  Keep checking!

Action Plan

Futures remained positive all night and continued to push higher in the premarket as earnings roll out.  How great it will be to have a follow through day after all the choppiness of the last couple months!  I will be looking for new trades today.  However, I will be watchful for signs of a pullback to test support because it could happen at any time.  Yesterday was saw the Dow close up more than 200 points.  It would not be out of the question to see some profit taking.

Trade Wisely,

Doug

The futures price action suggests the Bulls are back in town!

The pre-market futures price action seems to indicate that the Bulls got everything they wanted over the weekend.  The establishment candidates win in Europe removing much of the uncertainty of their path forward.  Also, our President has put a very ambitious plan for Congress this week.  Not only is he expecting the passage of the New Health Care plan but also his new Tax Plan as well as a budget extension.

The Bulls seem to like everything they hear and apparently want to party like it’s it 1999.  As I write this, the Dow Futures are pointing to a nearly 200-point gap up.  It would be easy to let our emotions run wild this morning but let’s not forget that Congress must get something done!  Passing just one of these important measures would be a big week for this Congress let alone three!  If they fail should we expect a similar Bearish response in the market?

As much as I love seeing resistance levels broken, I have to remember that a one day gap up move does not make a trend.  A pullback to test support is not only possible but likely.  It would not be out of the question to see a big intraday whipsaw to test support with emotions running this high.  Keep a very close eye on price action this morning for quick reversals.  The wise trader will maintain discipline and stick to their rules of engagement no matter how emotional the market may be.

On the Calendar

The Economic Calander starts with week with a whimper but will end with a roar.  Today we have no major reports just a couple Fed speakers pontificating on interest rates.  However, as we move the week progresses we have several market-moving stories with the GDP number front and center Friday morning.  The Earnings Calendar kicks into high gear this week with nearly 1200 companies reporting by Friday.  Today more than 100 report earnings, so it’s a good idea to check and recheck before entering new trades.

Action Plan

At 8:00 AM Central Time I am being interviewed on a local radio station.  I should be finished up by the time the market opens today, but I will likely miss the first 30 minutes of the day.  I’m not holding many positions and stops are in place, so nothing to worry about there.  Just as soon as I get back, I will dive into the charts to see what I can find.

Keep in mind; we could experience a lot of volatility this morning.  Sitting on your hands for the first 30 minutes to allow the wild price fluctuations subside would likely be a wise move today.  Eventually, the Market could wake up to the fact that Congress saying they will do something is a long way from them getting it done!  If they fail, I think we could see Bears regain control.  Buckle up it could be a rough week!

Trade Wisely,

Doug

Yesterday’s price action was great but can it follow through?

Thursday’s price action was just enough to inspire a hopeful vision of bullishness.  As nice as it was to get some relief from the selloff yesterday, more is needed to prove that its over.  One of the first lessons to be learned in trading is that one day of bullish price action does not make a trend.  Follow through is required.

A single day of price action can suggest reversal; it can inspire bullishness but it truth without following though it’s only hopeful speculation.  Let’s keep in mind that the DIA and the SPY rallied to test resistance but failed to break it.  On the other hand, the Q’s and the IWM found the energy to break resistance.  Now the question is, can it hold?

Personally, I hope that it can, but I’m unwilling to speculate and risk my capital until I see a bit more proof.  I have a rule that resistance does not become support until its tested.  Over the year that rule has saved me from taking significant losses Hoping that support will hold.  Hoping that something is true is natural but risking capital on Hope is nothing more than gambling.  Las Vegas has build monuments with the lost capital of hopefulness.  I understand that waiting is hard, but it’s my opinion that waiting is much easier than the pain of loss.

On the Calendar

We kick off the Economic Calendar today with a Fed speaker at 9:30 AM Eastern time.  The PMI Composite number quickly follow at 9:45 AM with Existing Home Sales at 10:00.  Both reports have the potential to move the market.  It would be wise to keep an eye on price action after these reports with the market as such a critical point.  On the Earnings Calendar, we have 36 companies reporting today but keep in mind there are 110 reporting Monday.  Plan accordingly and be prepared.  Not checking is lazy and we all know there is no room for lazy when our money is at stake!

Action Plan

As you know, I consider Friday as Pay Day!  As a result, my focus shifts from buying to new positions to taking profits.  With all the uncertainty we are currently experiencing in the world right now I feel much more comfortable reducing risk before the weekend.  One of the hardest lessons I have ever learned is never to allow greed to get in the way of taking a profit.  We all want to hold our for higher gains, but experience has taught me that very often less is more.  Commissions are cheap.  I can always buy a position back on Monday, but I can not guarantee there will be a profit unless I put it in the bank!

Trade Wisely,

Doug

Uncertainty fuels the price action to another day of losses.

The short-term price action rally was only able to hold out for a brief time yesterday.  The Bulls had a short-lived spurt of energy but once GS started to turn back down everything followed.  Okay, enough of the past, where do we go from here?  I would like to think we are due for an oversold rally.  However, as of now, there is nothing in the charts to suggest that.

Earnings reports have the potential to dig us out of this hole, but if another bell weather like GS or IBM disappoints the Bulls may give up the battle.   After the bell yesterday we had a good round of reports, and so far this morning the results have lifted the futures.  The big question is will it be enough energy to break resistance?  I think we will need to see a media darling company like Amazon or Facebook blowing the doors off of expectations to make that happen.

On the Calendar

Right out of the gate this morning we have a Fed speaker on the Economic Calendar at 8 AM Eastern.  Two potential market-moving reports, Jobless Claims and the Philly Fed Survey at 8:30 AM.  The jobless number would most likely have to be a big surprise to move the market.  As a result, the Philly Fed number is the one to watch this morning.

Plan of Action

My plan for the day is simple.  Maintain my current positions and carefully watch for clues of a bounce.  Why a bounce?  The overall market has been in decline for more than a month.  I, of course, could easily be wrong but I think a relief rally could begin at any time.  Keep in mind there is not a thing in the charts currently suggesting that!  Also, know I will wait for evidence of a rally before adding long risk to my account.  My rules require that I only take short positions at or near resistance, not at new lows.  Waiting is hard but its better than buying up puts or trying to short at market lows.

Trade wisely,

Doug

P.S. our new phone App has already been downloaded in 15 countries.  Thank you!  Rick and I hope you find it a really nice, value added, addition to your service.

Is it time for a relief rally?  The short term price suggests a possibility exists.

A relief rally may be in order, but there are several factors that could stop it dead in its tracks.  The short term price action seems to suggest a small rally.  However, let me be very clear.  A short-term signal is only good for a very short-term.  As the market moves toward the open and companies, report earning before the bell anything is possible.  Please keep in mind that all the major indexes are still below daily price supports!

I know it’s hard to get daily bearish market readings because we all want the market to start moving back up.  As a result, our bias for bullishness gets in the way of reading the chart.  The opposite can also be true.  After having a bearish opinion for such a long time, it is very easy not to see bullishness.  The fifteen-minute charts of the SPY, IWM, QQQ and now the DIA are now showing a tiny trend.

Tiny trends are not much to hang your hat on, but at least it’s a sign the Bulls may be willing to fight back.  This morning Black Rock, the massive ETF firm, blew away earnings estimates.  The also reported huge inflows last quarter.  I have mentioned that it’s the little things that make a difference.  I have to confess when I see huge inflows into ETF’s it bolsters my confidence in the overall market.  The problem is that’s not all w have to consider.

Stumbling Blocks

With all the saber rattling, foreign elections, upcoming budget battle in the US, there are a lot of stumbling blocks for the Bulls.  That’s Not to mention all the possible obstacles that earnings season presents.   With so much up in the air I think we should prepare for higher volatility in the weeks ahead.  For me, that usually means trading smaller positions.  I also want to prepare trading plans that take profits faster with volatile price action.

On the Calendar

First up on the Economic Calendar is one of those big stumbling blocks, the Petroleum Status report.  If the number shows a big build in supply, the Bears could be emboldened.  On the other hand, a decline in supply may be just what the Bulls need to break the downtrend.  Keep and eye on that number at 10:30 AM Eastern time.  At 12:30 PM have another Fed speaker follow by the Beige Book at 2:00 PM.  Both are unlikely to move the market.

Action Plan

My plan for today is to remain cautious.  The short term rally is encouraging but defeating the longer term resistance the Bulls step up in a big way.  Earnings could provide them with the energy to do so, but any stumble and the Bears will remain in charge.  For new traders, it remains a very tough time.  Please protect your capital until we have clear signals that the downtrend breaks.

Trade wisely,

Doug

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The Price Action is Encouraging.  The question is can it break through resistance?

The price action Monday was very encouraging.  I kept going through charts and must admit the temptation to break my rules was strong.  During the RWO session yesterday I marked up the index charts to illustrate where I would see proof of a reversal.  My plan and the discipline to stick to it kept me taking the leap.  With the Dow futures posting overnight lows of -60 points once again confirmed that sticking to a plan is the right thing to do.

To be honest, there are times when sticking to my plan has at times cost me money.  We have all seen a reversal that rips higher and never looks back.  At those time you want to kick yourself for sticking to a plan, however, most of the time, the plan will save you from yourself.  I can show you years of statistical data to prove that sticking to a plan works.  It shows that following a discipline (a process) that a plan provides is priceless.

Boring right?  Who wants to follow a bunch of rules?  A simple question to ask yourself if you trade without a plan; Is your account growing consistently?  If your answer is no, then the question has to be are you willing to change?  If you answer that question with an emphatic YES, then you have made a breakthrough.  Your next step is clear.  If you answered No; my suggestion would be to stop trading right now!  Find an advisor that will put you in some diversified mutual funds.  You and thank me later.

On the Calendar

Today we have a couple of market-moving reports on the Economic Calendar.  First up we will get a reading on Housing Starts at 8:30 AM Eastern time followed by Industrial Production at 9:15.  Between these big report, we have another Fed speaker with something to say at 9 AM.  Today we have 53 companies reporting as we ramp this earnings season.

Action Plan

In the last hour, the futures have been climbing back toward positive gaining almost 50 points.  The rally is mostly a result of the big bank earnings on BAC and GS.  Their numbers were positive, but I have to say looking at the charts there is nothing that impressive.  I plan to be cautiously optimistic today when looking for new positions.  I will not be at all surprised to see a retest of overnight lows, however.  Please keep in mind the indexes are right at the point where a failure to break the downtrend is likely to occur.  The conditions are perfect for a whipsaw so plan accordingly.

Trade wisely,

Doug

Earnings Season Begins.  Can The Big Banks Reverse Bearish Price Action?

The current downtrend and the choppy bearish price action is without question challenging for all traders.  It tests our ability to maintain discipline and follow a set of rules.  I have been trading for 27 years and can tell you honestly that dealing with choppy markets never gets easier.  Temptations and distractions are everywhere.  Sitting here day after day doing nothing but watching the market grind is frustrating to be sure.

With a couple of big banks reporting today, we kick off the second quarter earnings season.  However, we also must realize that today is the last trading day before a three day weekend.  Personally, I’m hoping the banks can reverse the downtrend, but my desire is not a good reason to trade.  As the sole owner of my trading business, the responsibility to maintain discipline rests directly on my shoulders.  I take that very seriously because my paycheck depends on the fact that I do.

On the Calendar

Along with the drama of the earnings kickoff, there are reports of note on the Economic Calendar.  At 8:30 AM Eastern we will get the weekly Jobless Claims number as well as a reading on the PPI number.  At 10:30 AM Eastern Consumer Sentiment number will be reported.  My guess is the PPI number will the one most likely move the market this morning.

Although the market is closed Friday, at 8:30 AM Eastern the Consumer Price Index and Retail Sale numbers come out.  Business Inventories report at 10 AM.  Both the CPI and the Retail numbers are market-moving reports.  With the market closed, we have to consider the possibility that Monday may produce a gap.  Plan accordingly.

Action Plan

My plan for the day is simple.  Manage my existing positions!  While I will prepare for new positions, I will have Monday in mind.  I see no reason for adding new trades today the potential for risk is simply too high.  I have no desire to ruin a three-day weekend worrying about a bunch of new positions.  Take the day off and do something fun.  Make it a 4-day weekend and enjoy yourself!  I can promise you the Market won’t care!

I wish you all a wonderful weekend.

Trade wisely,

Doug

Encouraging Market Price Action but Could It Be a Bull Trap?

One of the many issues I struggled with as a trader was chasing bullish price action.  I had somehow picked up the notion that to be successful as a trader it was necessary always to catch the perfect entry.  When I would see even the hint of bullish price action, I would leap in with both feet.  As a result, my trading account bounced around like a Yo-Yo on a string.

Of course, sometimes I would be right, and the rewards made me feel like a trading genius.  When I was wrong, which was about 50% of the time, I felt horrible as I waved goodbye my profits.  It took me years to learn my problem was one of prediction.   I would see and Hammer Candle Pattern like the one that formed yesterday on the SPY and the DIA.  I would jump in predicting the Bulls were back!  However, what I found about half the time is that I had stepped right into a Bear trap.

I suffered beating after beating ( I guess I’m a slow learner) before I realized price action is unpredictable.  That Hammer Pattern would blind me to the overall price action.  I would ignore the fact that the chart was not only still in a downtrend but obviously still under resistance.  I would never notice that the hammer formed in a consolidation, not at the bottom of a selloff as the books I had studied displayed.  The truth is I so badly wanted a move higher I would leap to conclusions well before the price had confirmed anything.

On The Calendar

On the calendar today we have Import and Export prices at 8:30 AM Eastern, a Fed speaker at 10 AM, the Petroleum Status Report at 10:30 AM, and the Treasury Budget at 2 PM.  The import/export price can at times move the market from time to time.   The big number of the day will be the Petroleum Status which will often move the market.  On the Earnings front, we have 29 companies reporting today to keep us on our toes.

Action Plan

Futures currently are suggesting a slightly bearish open as I write this, so I want to continue to be cautious.  The Hammer Candle Pattern gives me a little encouragement that the Bulls could take over.  However, I will at a minimum need to see an upside follow through breaking the downtrend before I trust the Bulls strength.  Even then I have to acknowledge there is still resistance closely above that still needs to be dealt with, before a clear path higher emerges.

Trade Wisely,

Doug

Current Market Price Action Chops Up Accounts As Well As…

Over the last couple weeks, the market price action has been very challenging.  We have experienced several false entry signals, reversal patterns, and intra-day whipsaws.  I have been warning that this is the time for new and inexperienced traders to stand aside, watch and wait.  I know that can be harder said than done but it’s time’s like these when trading accounts get chopped to pieces.

Losing money is one thing however almost more damaging is what happens to traders confidence.  We never know how long an indecisive period like this will last   The trader invests a lot of time, energy and emotion into their efforts but receive loss after loss in return.  With confidence destroyed they are handed smaller accounts as a result.

It’s then when the trader begins to question everything, change everything and search for a perfect setup or perfect scan to end their woes.  Sadly no such thing exists, and a vicious cycle of searching and disappointment begins.  Trust me when I tell you this path has no end and years can be wasted traveling down it.  We traders are our worst enemy!  The market’s and we are traders so that means we must be trading, Right?

Wrong!  Often time’s we can make more by trading less.  Standing aside during choppy markets is not a sign of weakness it’s a sign of experience.  Watching does not mean you need to question your trading knowledge and change everything up; it shows patience.  Waiting isn’t a waste of time; it displays the discipline to stick to a plan.  Take control, be the boss and remember sometimes less is more!

On the Calendar

On the Economic Calendar today we have the JOLTS report at 10 AM Eastern, which is a report on available job openings.  It can at times move the market but unless it produces a big surprise that’s unlikely.  We also have one Fed speaker at 1:45 Eastern to be aware of as you plan your trading day.  On the Earnings Calendar, we only have 16 companies reporting none of which are newsie companies that move the market.

Acton Plan

As the market chops sideways it like a spring wound tighter and tighter.  Eventually, all that energy will likely release a big move one way or the other.  Personally, I don’t want to get caught overly long or overly short when that occurs.  If I trade, I will keep the positions small.  I will also plan to take profits faster than normal if I see resistance or the potential of a reversal brewing.  The majority of my time will be waiting in quiet preparation for the market to decide which direction.  Because three of the four indexes are displaying current downtrends, I have to assume the Bears still have the advantage for now.

Trade Wisely,

Doug

The Market has a fresh set of downs.  What team are you rooting for?  

A fresh set of downs for the market but which team will prevail?  As some of you know, I’m from Nebraska.  However, you may not know that I’m a huge college football, Nebraska Cornhusker fan.  No matter if the team is winning or losing every time they come out on the field with a fresh set of downs there is a renewed optimism.   I am unashamed to admit I have a Husker bias and always want them to win.  It’s a very good thing I don’t have any money on the line!

When the market has a fresh set of downs, and we do have money on the line, it’s natural to root for your team.  If you’re long on stocks, naturally the Bulls are your team and therefore optimistic of a win.  As a result, you have a bias, and it can affect the way you see a chart.  However, let’s not forget the Bears are still on the field and they have equally committed fans that want them to win.

As traders with money on the line, it is important that we step back from our bias and look at a chart objectively.  There are times when it is clear you’re team has the advantage and momentum to make you money.  To be consistently profitable and trade professionally we have to recognize and admit when the momentum has shifted and we can lose money.  For some traders that mean’s it’s time to switch teams and short the market. For other traders, it mean’s they should put that money back in their pocket, stand aside and just watch the game.

On the Calendar

Today on the Economic Calendar the only thing of relevance is Janet Yellen speaking at 4:10 Eastern time.  On the Earnings Calendar, there are 20 companies reporting today.  All in all a pretty boring market news day.

Action Plan

With the futures basically, flat this morning and the chart continuing to show that the Bears have the advantage of a downtrend my plan to be exercise patience.  Of course, I will be managing current positions and prepared for new trades, but I will patiently wait for the market to decide which direction.  Perhaps there will be news out of Washington D.C. that will inspire the market, but unless that happens, I’m expecting more chop.  Unless support or resistance breaks I honestly don’t think there will be much to do.

Trade Wisely,

Doug