Price will lead

2017 was an unbelievable year, but 2018 could be even better.  Price will lead the way.  I know there a lot of folks out thinking that because the market has run up so much, it necessarily must pullback.  That is without a doubt a possibility, but it is also far from a sure thing.  Unemployment is at historic lows, and consumer confidence is at historic highs.  Manufacturing is growing, and finally, real wages are beginning to increase.  The analysis suggests earnings growth may be as good or better this year as the last.  Perhaps it would be best not to trade what we think and focus on what we see in the price action.  The institutions always have and will always determine the direction of the market.  If we can set aside our bias, focus on price and simply follow it rather than trying to predict direction: Then 2018 could indeed exceed our expectations.

On the Calendar

One important report and a slew of bond-related auctions and settlements for this first trading day in 2018.  The PMI Manufacturing Index is at 9:45 AM Eastern today.  Last month PMI rose 1.2% on increasing orders and employment, but forecasters see the index standing pat at the same 55.0 reading this month.

There are five unconfirmed potential earnings reports today, but they all come after the bell.  Remember January begins a new round of earnings so make sure to develop the habit of checking coming reports.  The fireworks don’t really begin to ramp up until mid-month, but there is no time like the present to start developing a good habit.

Action Plan

The last trading day of 2017 had a very nice start to the day, but profit takers quickly began to rule the day.  The DIA, SPY, and IWM left behind bearish engulfing patterns while the QQQ’s seemed to give up a short-term support.  Historically January is a positive month as the bulls find value after a tax selling pullback in December.  However, no such pullback occurred this year.  Only a choppy consolidation that essentially held the bullish trend.  So what happens next?  As of right now, I have to recognize the bearish candles left behind on Friday a proceed with caution.  At the same time, I want to be careful not to jump to a bearish conclusion by trying to get short.  Remember last week was low-volume chop which is not exactly a confidence builder for direction.

Futures are currently pointing to a bullish open but don’t be surprised if today is another low-volume showing as many traders may have extended their holiday vacation time.  I plan to move slowly to as far as adding new positions today, but I certainly will rule out the possibility of new trades.  Let’s keep in mind that the FOMC minutes are out tomorrow and the Employment Situation number is Friday morning.  Both tend to inspire choppy indecisive price action.

Trade Wisely,

Doug