New Trade Agreement

A huge bullish gap to begin the first day of trading of the 4^th quarter after inking a new trade agreement between the US and Canada fired up the futures last night.  Asian markets closed up across the board, and European markets are currently showing green across the board.  As I write this, US Futures suggest a huge morning gap 200 points.

If you’re holding long positions, remember gaps are gifts!  As a result, I will be looking to scale out or even close some positions taking that gift to the bank.  Remember big news driven gaps create a lot of emotion and the Fear of Missing Out is very powerful causing many traders to leap before looking.  Whipsaws are common at or near market highs so be careful not to get caught up in the morning hype blindly chasing in at the open.  Is it possible the open is the highest print of the day? Yes, it’s possible, so stay focused on price action and avoid chasing.

On the Calendar

We begin the first day of the new quarter with a Fed Speaker at 8:30 AM Eastern on the Economic Calendar.  At 9:45 AM the PMI Mfg. Index expects a reading of 54.5 vs. September’s 55.6 flash number according to consensus.  The ISM MFG at 10:00 AM is the most likely market-moving report of the day and expects a small decline to  59.9 vs. the very strong 61.3 August reading.  Also at 10:00 AM, Construction Spending according to consensus will see in increase of 0.5 percent vs. July’s marginal 0.1 gain.  We have a Fed Speaker at 11:00 AM and a Bond Announcement, two Bond Auctions at 11:30 AM, with yet another Fed Speaker to wrap up the calendar day at 12:15 PM.

On the Earnings Calendar, we have 15 companies expected to report today with the most notable being SFIX after the bell.

Action Plan

A new trade agreement between the US and Canada was reached just before reaching the Presidents deadline has really fired up the Bulls this morning.  Currently, the Dow would gap 200 points higher on the news with all the other indexes surging higher as well.  Those holding short positions like my long VXX Calls will experience pain this morning caught in this Bullish trap.

However, be careful not to get caught up in the morning hype and remember a big gap up at or near market highs can experience nasty whipsaw price action.  Wait for proof after the open that real buyers are stepping in support of the gap before jumping into the fray.  Long positions could see a nice surge in profits this morning.  Gaps are gifts, and I will most likely close part or all of some trades to unwrap those gifts and bank the gains.

Trade Wisely,

Doug