Is it time for a relief rally? The short term price suggests a possibility exists.
A relief rally may be in order, but there are several factors that could stop it dead in its tracks. The short term price action seems to suggest a small rally. However, let me be very clear. A short-term signal is only good for a very short-term. As the market moves toward the open and companies, report earning before the bell anything is possible. Please keep in mind that all the major indexes are still below daily price supports!
I know it’s hard to get daily bearish market readings because we all want the market to start moving back up. As a result, our bias for bullishness gets in the way of reading the chart. The opposite can also be true. After having a bearish opinion for such a long time, it is very easy not to see bullishness. The fifteen-minute charts of the SPY, IWM, QQQ and now the DIA are now showing a tiny trend.
Tiny trends are not much to hang your hat on, but at least it’s a sign the Bulls may be willing to fight back. This morning Black Rock, the massive ETF firm, blew away earnings estimates. The also reported huge inflows last quarter. I have mentioned that it’s the little things that make a difference. I have to confess when I see huge inflows into ETF’s it bolsters my confidence in the overall market. The problem is that’s not all w have to consider.
Stumbling Blocks
With all the saber rattling, foreign elections, upcoming budget battle in the US, there are a lot of stumbling blocks for the Bulls. That’s Not to mention all the possible obstacles that earnings season presents. With so much up in the air I think we should prepare for higher volatility in the weeks ahead. For me, that usually means trading smaller positions. I also want to prepare trading plans that take profits faster with volatile price action.
On the Calendar
First up on the Economic Calendar is one of those big stumbling blocks, the Petroleum Status report. If the number shows a big build in supply, the Bears could be emboldened. On the other hand, a decline in supply may be just what the Bulls need to break the downtrend. Keep and eye on that number at 10:30 AM Eastern time. At 12:30 PM have another Fed speaker follow by the Beige Book at 2:00 PM. Both are unlikely to move the market.
Action Plan
My plan for today is to remain cautious. The short term rally is encouraging but defeating the longer term resistance the Bulls step up in a big way. Earnings could provide them with the energy to do so, but any stumble and the Bears will remain in charge. For new traders, it remains a very tough time. Please protect your capital until we have clear signals that the downtrend breaks.
Trade wisely,
Doug
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