Healthy Market

In the last couple morning notes, I have suggested a consolidation and or a pullback could begin at any time.  Not because I’m bearish but because that’s what a healthy market does.  It tests its boundaries and seeks out price support or resistance.  As a swing trader, I have learned to embrace consolidations and pullbacks because that’s good entries can be found.  However, as a trading coach, I often find that inexperienced traders fear the possibility of pullback rather than seeing it as the natural progress of price action.

It should be no big surprise the emotions of fear and greed are the normal cause.  Consider these two simple rules if you’re currently struggling with this problem.  1.  Only buy stocks that are at or near price support with a buy signal.  Don’t predict or anticipate the buy signal, wait for it to occur before entering.  2. Sell stocks (take profits) that or at or nearing resistance.  These simple rules helped me many years ago when I struggled with fear and greed, and if you build them into your trade plans I’m confident they will also help you.

On the Calendar

The Tuesday Economic Calendar gets started today will a Fed Speaker at 8:00 AM Eastern, and we have another one this afternoon 1:10 PM.  At 8:30 AM the biggest number of the day Retail Sales expects a moderate 0.3% according to consensus.  Also at 8:30 the Empire State Mfg Survey expects a 15.5 vs. the April report of 15.8.  Business Inventories at 10:00 AM forecasters see a modest 0.2 percent increase with sales slightly outpacing inventories.  Also at 10:00 the Housing Market Index expects home-builder confidence to come in flat at 69 even though home sales and permits are both accelerating.  The last of the potential market-moving reports is at 4:00 PM when Treasury Internation Capital reports it’s tracking statistics of financial instruments in and out of the United States.  Other than that we have the Redbook and a single bond auction to complete the calendar day.

On the Earnings Calendar, we have the last big of 2^nd quarter reports with nearly 250 on today’s docket to keep traders and investors on their toes.

Action Plan

Yesterday marked the 8^th day of the current Dow rally (up 68 points) that has seen the index rise more than 1450 points from last Thursday’s low.  Although a bullish day the indexes ended the trading slightly under pressure from profit takers leaving behind possible short-term topping candle patterns.  Futures are currently pointing to a slightly lower not helped by the sales miss in the Home Depot earnings report early this morning.  However, with the nearly 250 companies reporting today and a busy economic calendar topped by Retail sales, anything is possible.

After such a big rally a consolidation of the gains or a pullback to test support would be very healthy for the market.  However, let’s not assume the bulls will give up just because the indexes printed some topping patterns.  Remember candlestick patterns require follow to confirm them and with new record highs within reach on the QQQ’s and IWM the bulls find inspiration almost anywhere.  Let’s keep in mind the deadline for the North America trade agreement is Thursday, and the market could be very sensitive to the news and or the negotiated results.  As always stay focused on price action.

Trade Wisely,

Doug