Healthy Price Action

The morning the bears seem to have returned with a vengeance on their mind.  The Dow Futures are pointing to a substantial gap down it will likely punish those that chased into a 6-day rally at resistance.  While many might see this move as a negative, I view it as a sign of healthy price action.  In fact, a pullback after such a strong relief rally could be just what the doctor ordered if the bulls can defend a higher low.

I have said several times that this selloff would likely take several weeks to resolve itself.  If the bull can hold a higher low or develop a level of consolidation our swing trading Edge is likely to return.  However it the bears gain the upper hand watch for a retest of the February lows.  I know this is a biased statement, but I think the economic data and the strong earnings results will support the bulls.  However, as always I will not try and predict I will patiently watch and wait for proof in the price action that buyers have regained control.

On the Calendar

We begin this four-day trading week with a very light Economic Calendar this Tuesday.  Between 11:30 AM and 1:00 PM there are 4-bond auctions which both begins and ends the economic calendar today.

On the Earnings Calendar, we have more than 160 companies reporting results.  The first quarter earnings season seems to spread out forever.  This year we will well into March before it draws to a close.  Checking earnings against current holdings or companies, you plan to buy is a daily habit a trader should build into each day as part of your preparation.

Action Plan

Thursday and Friday left behind cautionary candle patterns in the DIA, SPY and the QQQ.  The hanging man pattern and the shooting star pattern near the 50-day average on the DIA and SPY are the most concerning.  A failure at or near the 50-day average would raise concerns of a possible retest of February lows.  However, if the bulls can manage a hold a higher low or build a level of consolidation, it could finally calm the market volatility and bring back a swing traders edge.

Today the Dow Futures are pointing to about a 200 point gap down which will create a significant fear and once again elevate intra-day volatility.  Expect some very fast price action today with the possibility of nasty whipsaw price action.  The 25,000 level of the Dow is a very importing psychological level for the market.  I suspect that will be an important battleground between the bulls and the bears.  Be very careful not to get caught in the crossfire.

Trade Wisley,

Doug