Pop and Drop

After gaping up nearly 90 points yesterday, the Dow found the only sellers and delivering the classic pop and drop whipsaw.  Leaving behind a bearish engulfing candle on the DIA suggest a lower print today but the fact the index continues to hold about a key support continues to give the Bulls a slight edge.  On the other hand, the NASDAQ appears to be the most vulnerable as it lingers below a key resistance level.

Yesterday I cautioned about chasing a gap caught up with the fear-of-missing-out.  The same caution holds true today.  It is just as wrong to chase a gap down as it is to chase a gap up.  Fool me once shame on you, fool me twice shame on me!  Emotional undisciplined trading is the pitfall for the majority of retail traders.  Don’t play that game and watch your account continue to be chopped up.  Today after the gap down wait and watch for follow-through because there is just as much chance of whipsaw up near support as there was for the pop and drop yesterday.

On the Calendar

Today’s Economic Calendar kicks off early today, but there is only one potential market-moving report.  We begin with the NFIB Small Business Optimism Index @ 6:00 AM then the Redbook at 8:55 AM.  The JOLTS report at 10:00 AM expects job openings to increase slightly to 6.670 million in July vs. 6.662 million in June continuing the trend of strong demand for labor.  Wholesale Trade is also @ 10:00 AM and we have three Bond Auctions between 11:30 AM and 1:00 PM to finish the Calendar day.

On the Earnings Calendar today we have just ten companies reporting results, and none of them are particularly noteworthy.  Make sure to keep checking because being surprised by an earnings report can prove to be a costly mistake!

Action Plan

Yesterday I cautioned about chase the morning gap and getting caught up with the fear of missing out.  The DIA found only sellers after gapping up nearly 90 points with the classic pop and drop whipsaw leaving behind a bearish engulfing candle.  The SPY and IWM faired better closing down on the day but continued to hold above Friday’s low prints while the QQQ stalled below resistance.  Currently, the Dow Futures are suggesting a gap down of equal magnitude of yesterdays gap up.

The good news is that the DIA, SPY, and IWM remain above key supports that could be defended by the bulls.  The QQQ’s appear to be the most vulnerable to a bear attack currently under price resistance.  If selling pressure continues after the market, open clues to future selling might manifest in the QQQ’s first.  Remember the Bulls will not likely give up easily so watch for a potential whipsaw back up at or near support levels.  It is just as wrong to get caught up, chasing a gap down as it is to chase a gap up.

Trade Wisley,

Doug