Extreme Volatility

Resistance proved to be too strong yesterday with the bears laying in wait to ambush the morning rally.  Current price action is displaying such extreme volatility even the most adept and experienced day traders find it challenging.  Trying to navigate such volatile price action as a swing trader would only be suitable for those with a very high tolerance for risk.

I have been warning that swing traders have little to no edge when a market becomes so violently emotional.  If your continues to be chopped up, stop trading until the market calms down and your edge returns.  Standing aside during times like this does not make you less of a trader.  In fact, I would argue it makes you the smart CEO of your trading business that recognizes when the risk is just too high.  Remember cash is a position that can serve you well in times as volatile as these.

On the Calendar

There are a total of five reports that come out at 8:30 AM Eastern on this last hump day in March.  Two of the five, GDP and International Trade in Goods could easily move the market while with corporate Profits, Retail Inventories and Wholesale Inventories unlikely to do so.  The GDP number according to consensus is expected to rise slightly to 2.7% annualized vs. the last reading at 2.5%.  Consumer spending should hold steady at a 3.8% rate with the GDP index unchanged at 2.3%.

Consensus suggests the deficit in International Trade will narrow slightly to 74.0 billion vs. December reading of 75.3.  At 10:30 the Pending Home Sales Index is expected to bounce back 3% after posting a sharp 4.7% decline in February’s report.  The EIA Petroleum Status report produced a surprise decline in supplies on the last reading helping to boost oil prices.  It’s 10:30 AM reading today is not forecast forward but does have the potential of moving the market on its release.  We have a Fed Speaker at 11:30 AM, two note auctions and then Farm Prices report at 3:00 PM to close this busy day.

The Earnings Calendar shows 83 companies are expected to report results today as if there is not already enough to keep us on our toes today.

Action Plan

Yesterday I suggested it would be wise not to chase the morning gap and to be careful buying as the market pushed up toward resistance levels.  After a nice morning rally which looked steady and consistent, the market ran headlong into a bear ambush.  At the close, all four of the major indexes closed with bearish candle patterns as high volatility continues to plague the market.

With the Dow, less than 500 points away from its 200-day average it seems the odds would favor the bears testing this important level.  Please exercise caution if you do plan to trade and remember swing traders have very little edge when such volatility exists.

Trade Wisely,

Doug