Price Action Favors the Bears, But?

Price action certainly favored the Bears yesterday as the market sold off into the close and smashing through support levels.  Normally we would expect to see more selling at the open today, but this choppy market is far from what I would call normal.  Whipsaws can happen in either direction, and we certainly know this market has the willingness to whip.  Also, keep in mind the possibility we could see a little end of quarter window dressing as we wind down the week.  I will continue to expect very choppy and whippy price action so keep a close eye on the price action.

On the Calendar

Hump day begins with the International trade in goods report before the market opens at 8:30 Am Eastern.  The April number deepened the deficit by 3.5%, but the consensus is expecting a slight improvement for the May number.  At 10:00 AM we get a reading on the Pending Home Sales Index which is expected to improve by 0.5% this month.  At 10:30 we get the EIA Petroleum Status Report which will likely be most watch number of the day.  Supplies have been in decline but not fast enough to improve oil prices just yet.  A continued draw down will be important for the overall market.

On the Earnings Calendar, we have 24 companies reporting today.  MON and PIR are among those reporting and may be the most noteworthy for our members.  It is also wise to keep in mind as the end of the quarter approaches watch for the possibility of window dressing which could begin at any time.

Action Plan

The afternoon selloff yesterday made a mess of the index charts.  The SPY is very close to testing the 50-day average while the QQQ’s closed below the 50 for the first time this year.  The DIA is currently the strongest of the indexes failed price support yesterday as did the IWM painting a pretty bleak picture.  However, we are close to the end of the quarter which is often the time we see the institutions do a little window dressing before they close the books.  Logic would suggest we see more lows today, but we should keep an eye our for a possible bounce that could begin at any time with that window dressing in mind.

My SPY hedge position at the end of the day was showing a very nice overall gain due to yesterday’s selling.  As this position is entering its heavy Theta Decay period, it would be in my best interest to exit the position very soon.  I will be watching the SPY closely this morning with that in mind and may take the profits today.  Before adding any new trades, I will need to see some buyers stepping I to support current prices.  I must also start watching for stocks setting ups short trades and begin building that list to prepared if we start to see a full on the shift in the overall market trend.

Trade Wisely,

Doug