Caution

Lately, I repeatedly mentioned the necessity of caution with the current market condition.  It’s a message that traders never like to hear, but that doesn’t make it any less true.  Currently, the futures are pointing to a gap down on nearly 400 points.  A brutal reminder that the market will punish those trading a bias rather than heeding the warnings in the price action of the chart.

Obviously, volatility will be extremely high this morning.  Expect very fast price action this morning with huge intraday whipsaws.  Early panic could easily lead to additional selling this morning.  Don’t chase this gap down short and don’t assume that buying this dip will be a profitable gamble.  Let’s hope cooler heads prevail, but this kind of massive technical damage will likely take a long time to repair.

On the Calendar

There are no expected market-moving events on the Tuesday economic calendar.  We have the Redbook@ 8:55 AM, Fed Speaker at 9:30 AM, Richmond Fed Mfg. Index at 10:00 AM, three Bond events between 11:30 AM and 1:00 PM, with four more Fed Speakers @ 1:30 PM, 2:15 PM, 615 PM and at 8:00 PM to close the calendar day.

On the Earnings Calendar, there are 139 companies reporting earnings today.  I highly recommend that you check all current and proposed positions against the earnings calendar.  With the current high volatility of the market failing to do so could prove to be an expensive lesson.

Action Plan

Last Friday I warned of a possible pop and drop.  Yesterday I suggested the same possibility and to watch for very high volatility.  I have intentionally used the phrase “be careful” several times in the morning videos when going over the index charts pointing out the potential stumbling blocks.  Yesterday I received criticism for doing so and was accused of trying to politically correct.  I’m not sure how my expression of caution is considered politically correct, but my read of the price action seems to have been correct.

I’m writing this not because my feeling were hurt or that I’m angry about the criticism.  I bring it up because it’s a lesson on bias, and how that effect a trader.  We may not like what the price action is telling us, but that doesn’t make it any less accurate.  Every trader has the choice to move with the market or fight it.  It’s been my experience that only one of those choices allows you to say in the game and grow your account over the long-term.  With the futures suggesting nearly a 400 point gap down today, I suspect those that choose to fight the market will once again have to suffer the consequences of defiance.

Trade Wisely,

Doug