Price is King

After two months of messy price action, the storm clouds are giving way to blue skies, but it may take a little longer for smooth sailing to return.  The DIA continues to lag significantly behind the other indexes as it continues to struggle with its 50-day average as resistance.  The QQQ is leading the way, and the SPY and IWM are not far behind dragging the DIA along like a boat anchor.  Clearly, the other indexes can continue to move higher without the DIA, but the work will be harder until it can carry its weight rather than being dragged.  Overall the bulls are in control, and many stocks have resumed their trends but don’t be surprised if the daily index price action starts to grind or even slips into consolidation.  There can be great trading in this environment, but we may have to exercise some patience and plan a little extra holding time for options trades.

On the Calendar

Only one big report today’s Economic Calendar but the Consumer Price Index is one that can move the market.  The report comes out at 8:30 AM Eastern and will be watched closely for pricing pressures which, of course, would signal inflation.  Consensus for the headline CPI is for a monthly gain of 0.2% and a yearly rate of 2.2% up just one-tenth.  Remove food and energy, and consensus expects a slight rise to 1.9%  A couple of smaller reports from Small Business Optimism, Redbook, and a couple of bond events round out the day.

On the Earnings Calendar just short of 110 companies are expected to report earnings today.

Action Plan

An interesting mix of price action in the indexes yesterday as the QQQ sailed to new records while the DIA sold off below the 50-day average once again.  The SPY saw only modest profit taking while the IWM squeezed out its 7^th day up in the current rally.  All in all a good showing by the bulls considering the size of last Friday’s rally.  The VIX managed a small rally but by the close remained under resistance and the 50-day average as market fears seem to be calming down.

As I write this Dow Futures are pointing to about a 70 point gap up which would recover about half of yesterdays losses, but a lot could still change, and earnings as economic news come out.  The T2122 4 week new high / low ratio is suggesting the current rally is getting a bit long in the tooth, and a pullback or consolidation may be just around the corner.  There are a lot of very nice looking charts but be careful on to chase.  Remember we want to buy stocks at or near price support.  The bulls are in control so any consolidation or pullback that holds support could set up great trade entries.

Trade Wisely,

Doug