Filling the gap.

The market has gone up so long, and so strongly it’s shocking when we see a quick reversal filling the gap.  It was likely a painful wake-up call for some traders, which complacently chased the morning gap.  As bad as it may have seemed the market up-trend did not break.  The bulls are still in control, but we must always remember that the bears can attack at any time.  We must always be focused and prepared.  As earnings continue to roll out increased volatility is possible.

On the Calendar

The Thursday Economic Calendar gets going at 8:30 AM with the weekly Jobless Claims.  Consensus has the number coming in around 240K and continuing to be considered full employment.  At 10:00 AM is New Home Sales is forecast to come in with a  very solid 680,000 annualized rate.  Other than that we have several lessor reports that are very unlikely to move the market as well as several bond related actions.

The Earnings Calendar hits its high point for the week with over 160 companies stepping up to report.  Make sure you are checking reporting dates and have a plan that protects your capital.

Action Plan

New record high prints across all 4-major indexes with the futures gapped the markets higher at the open.  Chasing the gap bulls seem to rush in pushing the Dow up nearly 170 points in the early session.  But then the market seemed to run out of gas selling off and filling the gap which is something we have not seen for a long time.   The last two months alone have left many unfilled gaps behind due to the strength of this bull run.  It serves as good reminder that the market can quickly change character.  Traders have to always be on their toes and ready to quickly adapt to the changing condition.  A focus on price action is the first best place to see conditions shift.  Price is always the best leading indicator.

After filling the morning gap, the buy the dip traders rushed back keeping the uptrend intact.  Futures are once again pushing for a gap up open.  The bull will not give up this fight easily especially with the expectation of very good earnings reports.  However, yesterdays price action is a clue that increased volatility, and quick reversals are possible during earnings.  If you’re in the market, always stay focused and never let your guard down.  Complacency is an account killer!

Trade Wisely,

Doug