Consolidation?

After the wild whips, we have experienced over the last 30 days of trading a couple of small range days in the market sure seems boring.  However, a little boring is just what the market needs to calm the nerves of traders and investors.  In our fast-paced market, a resting consolidation above the 50-day average would be very healthy in my humble opinion.  Consolidations in an index establish good support and resistance levels which in turn provide great stock entry or exit points for traders.  They allow stocks currently trending a stable environment to move with deliberate price action and provide great setups for traders and investors alike.

I have to admit a long consolidation during earnings season would be quite rare and probably unlikely but after a month of daily overnight reversals, even a day or two of rest can create a lot of healing.  So keep in mind a little boring price action can be a very, very positive thing if you’re a good technical analysis.

On the Calendar

We have a full Economic Calendar this Thursday, but only two reports are likely to move the market, and they both come out at 8:30 AM Eastern.  Weekly Jobless Claims according to consensus will decline by 3000 to 230,000 as labor demand remains consistent and strong.  The Philly Fed Business Outlook expects a slight pullback to a reading of 20.1 vs. the March number of 22.3 but remains near 50-year highs.  Reports not expected to move the market, 9:45 Consumer Comfort Index, 10:00 Leading indicators, 10:30 Natural Gas Report, 4:30 Fed Balance Sheet & Money Supply as well several bond events.  Also on the calendar, we have 3 Fed Speakers at 8:00 AM, 9:30 AM and 6:45 PM to round out the day.

On the Earnings Calendar, we have just over 100 companies reporting.  Make sure to check reporting dates of companies you hold or planning to buy.  Failure to do so can lead to very painful losses if you’re not prepared.

Action Plan

Yesterday was a nice resting day with indexes holding above 50-day moving averages but below important levels of resistance.  The VIX is also reflecting a calmer market with the fear index between the 15 and 16 handles.  Earnings which most often increases volatility has so far had the opposite effect as thus far reports have been strong, supporting current prices.

As I write this, the Dow Futures are pointing to a slightly low open but with so many earnings reports on the calendar that could easily change.  After such a large recovery it would not be out of the question to see the market rest (consolidate) or experience a pullback as traders take profits in preparation for the weekend ahead.  If we do pull back, it will be very important for the bulls to defend price supports and hold indexes around their 50-day averages.  Failure to do so could easily encourage the bears to push for another leg lower.  Continued strength in earnings reports will be very important to keep this rally alive.  There are a lot very good looking charts right now but be careful not chase by buying at or near price resistance levels.

Trade Wisley,

Doug