Party Crashers

Unfortunately, the Bears have decided to be party crashers today with a mean overnight reversal.  I have over the last several days suggested raising caution levels and slowing market activity.  As there were temptations everywhere in the charts, it was very difficult to maintain discipline.  I stuck to my plan, and this morning I’m being rewarded for doing so because I have protected my capital.  The VIX will likely see a sharp rise this morning opening the door for some very fast price action.  I suggest new or inexperienced traders stand aside as the price action will likely become very challenging.  Remember CASH is a position and in times like this can be the very best position!

On the Calendar

We have a busy Economic Calendar today,  At 8:30 AM Eastern there are two very important potentially market-moving reports, Consumer Price Index and Retail Sales.  Forecasters see the overall CPI rising 0.1%.  Year-on-year is seen at 2.0% with the core number at 1.7%.  Retail Sales is looking for  October to rise by 0.1% as well with core readings as high as 0.4% indicating a fundamental strength in consumer spending.  Also at 8:30 the less important report from Empire State Mfg Survey.  Consensus expects a 26.0 reading for November vs. the October 30.2 which was a historic high for the Survey.

Business Inventories expected to rise 0.1% at 10:00 AM and at 10:30 the EIA Petroleum Status is expected to show a decline in overall demand.  Keep in mind the oil number can be a big market mover.  At 4:00 PM is the Treasury International Captial report as well as Fed speaker, but both are unlikely to move the overall market.  There are over 70 companies reporting earnings today on the Earnings Calendar so stay on your toes and continue checking dates.  TGT, TJX, and DKS will report before the bell placing a high focus on retail.

Action Plan

Another grinding day in the market yesterday where the Bulls pushed back after the morning gap down.  The rally back up looks to have been a Bull trap considering the current futures readings.  The clues in price action have been subtle however they have been there, and I have continued to suggest raising caution levels.  Currently, the Dow Futures are suggesting a gap down of more than 100 points.  Support levels in the DIA and SPY will require a strong Bull defense or could easily fail.  If it support levels happen to break, prepare for the possibility of a quick and nasty selloff as stop-loss orders begin to trip in rapid succession.  Expect a substantial increase in volatility at the open making for fast intra-day reversals and mean whipsaw price action possible.

The Bears appear to have gained at least a short-term upper hand, but I don’t expect the Bulls to give up without a fight.  Don’t panic, focus on your trade plan.  Consider taking profits on winning trades and allow stop-loss orders to protect your capital.  Avoid the urge to chase the gap and never involve yourself in revenge trading.  If your emotions seem out of control, then set your stops and walk away from your computer until your head for good business decisions returns.

Trade Wisely,

Doug