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

The Overall Markets Continues to Downtrend.  Can the Employment Report Inspire the Bulls?

The markets slow, steady push upward yesterday showed that the Bulls were still in the fight.  Although they still had a lot of work to do, I began to invasion a break of the downtrend.  I had started to think that the Bulls just might have gained an edge over the Bears on the battlefield of resistance.  As the afternoon session progressed, the Bears seemed to regain the upper hand, particularly in the DIA chart.  My visions of Friday break of resistance faded as well, but I was holding out hope that the Friday report could inspire the Bulls.

Then during the evening, we heard of the US retaliation attack on Syria with 59 Tomahawk missiles.  I quickly took at look at the futures as they quickly moved south on the news.  The good news is that because I have to trade plan, a process that I follow and a set of rules to protect me from Me.  Because of it, my capital is safe, and I was able to sleep like a baby.

For those of you that don’t have a plan, I have to ask, What are you waiting for?  They are not that difficult to develop.  In fact, the time invested in developing a well thought out trading plan could prove to be the best money you have ever spent!   I can attest to that truth as it has saved me from my emotions and foolish ideas more times than I can count.  Just buckle down and get it done!

Calendar Events

This morning we get Mac Daddy report for the week.  The Employment Situation report provides a clue to the health of the overall markets and thus can easily move the market upon its release.  The ADP on Wednesday painted a pretty picture of jobs growth, so most are expecting today’s number to be very positive.  However, a big jobs number can also be a double-edged sword.  If the number is too hot, it could force the FOMC to act sooner expected on interest rates encouraging the Bears.

Plan of Action

My plan for the morning is to relax with my wife and enjoy and nice breakfast.  I will completely ignore all the drama and hype before and immediately after the report.  My charts are marked up, and I’m prepared to act if and only if price action warrants.  My stops are in place; my risk is within my tolerance acceptable zone, and I have the discipline to wait calmly.  Anything is possible.  The markets have a lot to chew on this morning, so I’m expecting considerable volatility.

I wish you all a profitable day and fantastic weekend!

Trade Wisely,

Doug

The Nasty Price Action of a Whipsaw.  Who’s to Blame?

One of the cruelest price action occurrences is the intraday whipsaw and yesterday we witnessed a doozy!  If you apply a little trader psychology to the whipsaw the emotions, Fear, Greed, and Panic will always come to the surface.  One of the places that whipsaws commonly occur is at or near price action bottoms when Fear suddenly reverses to Greed.  Of course, the opposite of that is what we witnessed yesterday.  With the market displaying topping patterns and uncertainty concerning the future of the rally Fear can quickly shift to Panic at or near price action tops.  Most commonly, an event or news story will trigger these nasty intraday reversals in price action.

Traders will often point to these events and assign blame to whatever triggered the reversal for their misfortune.  While it’s true, there was trigger point it’s incorrect to blame the person or the event that set the whipsaw in motion.  The ultimate responsibility for any losses incurred rests squarely on the shoulders of the trader.  Sorry I know that hurts to admit, but it is the truth.  When the market is trending higher, and everything is coming up roses we as traders often fail to see topping action or choose to ignore it.  Price action provided the clues but our emotions clouded our view.  Playing the blame is a bad habit.  Accept that the ultimate responsibility for success or failure rests with you and you alone.

On the Calendar

On the Economic Calander today, we have the weekly jobless claims and a single Fed speaker.  It would be unlikely that either will have the power to move the market today.  On the Earnings front, there are 25 companies reporting, but none are noteworthy unless you have been holding one or thinking of entering.

Plan of Action

My plan for the day do little more than managing the positions that I’m in and continue to prepare.  After the big reversal yesterday we can expect an extra dose of volatility and whippy price action this morning.  However, there is a very good chance the market will get very quiet today as we wait for the Friday morning employment report.  If I do decide to enter any new positions, they will be smaller than normal with a plan to take quick profits if I feel the trade is at risk.

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Trade Wisely,

Doug

“Patience, Grasshopper” Sometimes Less is More For Traders.

When I was a kid one of my favorite shows was a TV series called “Kung Fu.”  When the student played by actor, David Carradine wanted to rush his education; the Kung Fu master would say “patience, grasshopper.”  The phrase is so popular it has become part of the US lexicon.  However, I’m not sure many fully understand it’s context.  What the master wished to confer was that the desire to accomplish was not enough.  The real message was that with patient dedication, hard work, thoughtful study and repeated practice that success or mastery would be the result.

I think that kind of thinking applies well to trading and the current condition of the market.  Sitting in front of our computers we often tend to rush in, but the desire to hurry the process most often produces an undesirable result.  The trader with the patience to prepare, watch and wait for the best time to act will most likely succeed.

On the Calendar

Today on the Economic Calendar we have the ADP Employment Report, ISM Non-MFG, Petroleum Statis Report and the release of the FOMC minutes.  A big day for news to be sure.  Of those reports, it’s the report on the oil supply and the FOMC that have the most chance of moving the market.  On the Earnings Calendar, there are 23 companies reporting today.

Action Plan

I have mentioned in my morning notes and several times during the Right Way Options sessions that we should expect choppy price action.  Not that I want to be repetitive, but I believe we can expect more of the same the rest of this week.  After the morning rush, you should not be surprised to see the volume to become very light as we wait for the FOMC minutes.  After their release, there will be a flurry of activity that new or inexperienced traders would be wise to avoid.  Keep in mind the big Employment Situation report will be out on Friday morning.  The market will likely once again become choppy until it’s release.

Having said all of that my plan for the day is to be very patient watching, waiting and preparing for my next trade.  I have only made two entries this week, and that number may not grow at all today.  I don’t trade just to trade I will follow my rules and remain in control of my emotions.

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Trade wisely,

Doug

Focus on the bigger picture and don’t get distracted by the hard right edge.

With the afternoon rally yesterday it’s very easy to become overly focused on the hammer candlestick and ignore the downtrend staring us right in the face.  Most people are naturally positive.   When money is on the line the desire to be right will influence how we visualize a chart.  We may latch on the bullish hammer pattern and be blinded to the fact that it has occurred at resistance in the middle of a downtrend.  Not the most helpful place for a hammer to form.  Failing to see the overall chart pattern is a bad habit that can be tough to break.

We may latch on the bullish hammer pattern putting on blinders to the fact that it has occurred at resistance in the middle of a downtrend.  Not the most suitable placement for a hammer pattern to form.  Failing to see the overall chart pattern is a bad habit that can be tough to break.  I call it hard right edge trading.  It’s times like this when the trader tends to focus only on the candle and become blinded to the bigger picture.  I can tell you from experience this habit can cost you a lot of money if not dealt with by taking just a few more seconds to focus on the bigger picture objectively.

I can tell you from experience this habit can cost you a lot of money if not dealt with by taking just a few more seconds to focus on the bigger picture objectively.

On the Calendar

This data-laden week kicks off the morning with a potential market moving report on Internation Trade at 8:30 AM Eastern.  It’s followed shortly after by Factory Orders at 10 AM Eastern which can affect the market particularly if the number is a surprise.  Also noteworthy is the Fed speaker at the end of the day. On the Earnings Calendar, we only have 15 companies reporting today but, it’s wise to continue with the process of checking rather than being surprised.

Action Plan

With the futures continuing to push lower in the premarket I’m inclined to become very protective of the capital.  First thing first is not to panic.  Emotional decisions are rarely the correct business decision.  Remember to follow your trade plans because they are there to protect you from that emotional beast which costs you so much money.  As always manage the positions that you’re in first.  Set your stop orders and allow them to work for you!  If your new, inexperienced or struggling as a trader the best course of action may to simply set this one out!

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Trade Wisely,

Doug