Yesterday’s price action was great but can it follow through?

Thursday’s price action was just enough to inspire a hopeful vision of bullishness.  As nice as it was to get some relief from the selloff yesterday, more is needed to prove that its over.  One of the first lessons to be learned in trading is that one day of bullish price action does not make a trend.  Follow through is required.

A single day of price action can suggest reversal; it can inspire bullishness but it truth without following though it’s only hopeful speculation.  Let’s keep in mind that the DIA and the SPY rallied to test resistance but failed to break it.  On the other hand, the Q’s and the IWM found the energy to break resistance.  Now the question is, can it hold?

Personally, I hope that it can, but I’m unwilling to speculate and risk my capital until I see a bit more proof.  I have a rule that resistance does not become support until its tested.  Over the year that rule has saved me from taking significant losses Hoping that support will hold.  Hoping that something is true is natural but risking capital on Hope is nothing more than gambling.  Las Vegas has build monuments with the lost capital of hopefulness.  I understand that waiting is hard, but it’s my opinion that waiting is much easier than the pain of loss.

On the Calendar

We kick off the Economic Calendar today with a Fed speaker at 9:30 AM Eastern time.  The PMI Composite number quickly follow at 9:45 AM with Existing Home Sales at 10:00.  Both reports have the potential to move the market.  It would be wise to keep an eye on price action after these reports with the market as such a critical point.  On the Earnings Calendar, we have 36 companies reporting today but keep in mind there are 110 reporting Monday.  Plan accordingly and be prepared.  Not checking is lazy and we all know there is no room for lazy when our money is at stake!

Action Plan

As you know, I consider Friday as Pay Day!  As a result, my focus shifts from buying to new positions to taking profits.  With all the uncertainty we are currently experiencing in the world right now I feel much more comfortable reducing risk before the weekend.  One of the hardest lessons I have ever learned is never to allow greed to get in the way of taking a profit.  We all want to hold our for higher gains, but experience has taught me that very often less is more.  Commissions are cheap.  I can always buy a position back on Monday, but I can not guarantee there will be a profit unless I put it in the bank!

Trade Wisely,

Doug