Massive Short Squeeze

The quickly shifting sentiment on Trade War fears was reversed yesterday as White House officials spoke calmly of their intentions triggering a massive short squeeze yesterday.  From opening low to the high of the day, the Dow traveled more than 775 points.  There is still a lot of work to be done to confirm a market bottom, but yesterday bullish engulfing pattern at a major moving average is certainly a nice start.

The negotiations with China are far forming over so don’t’ be surprised if jitters and shock waves keep the market off balance and volatile in the day to come.  With so many charts producing buy signals, yesterday traders will have to be choosy and carefully weigh the risk of volatility against their tolerance when planning new positions.  Also, keep in mind after such a big move we could see some profit taking or consolidation ahead of the Friday’s job report.

On the Calendar

There is a full Economic Calendar this Thursday, but only two market-moving reports that both come out at 8:30 AM Eastern.  The International Trade deficit is expected to widen slightly to $56.7 billion in February.  This deficit is one of the trade metrics that is under negotiation with China that could quickly improve if a fair trade deal.  Then we have the Weekly Jobless Claims which consensus expects to come in at 230K.  Other than that we have several lessors reports a bunch of bond announcements and a Fed Speaker at 1:00 PM.

The Earnings Calendar is only showing 19 companies reporting earnings today.  Notable before the bell is MON, and then after the bell PSMT reports.

Action Plan

A big win for the Bulls yesterday after gaping down about 500 points the Dow recovered sharply to close the day up 230 points.  Such is the nature of politically generated volatility as panic, and then relief quickly reverses market sentiment.  Big bullish engulfing candles now grace all 4 of the major index charts at or near the daily 200 moving average.  Current downtrends have yet to reverse, and there is a lot of overhead resistance to deal with but yesterdays price action was a good start to a potential recovery.

Currently, the Dow Futures, point to a higher open but don be surprised if the market rests or pulls back as we wait for the Employment Situation report before the market open on Friday.  There are a lot of very good looking charts in the watchlist and scans.  If you trade to keep in mind, the threat of politically generated volatility still exists so plan your risk accordingly.

Trade Wisely,

Doug