Rough but not unexpected.

Rough but not unexpected, is how I would describe yesterdays price action.  The 2018 bull run has been like a 5-year old hopped up on sugar and caffeine.  It’s a blast while it lasts, but the crash after it wears off can be brutal.  On the positive side, the economic markers continue to be very strong, and thus far earnings have supported this lofty level.  On the negative side, inflation seems to be heating up, and that may force the FOMC to raise interests rates beyond whats already expected.  Elevated volatility could be here to stay at least for the short term.  Price action over the next several days could be very challenging especially for inexperienced traders.  Now is the time to maybe do a little less trading, a little more trade preparation, and become very picky about the trades you take.

On the Calendar

We have a busy Economic Calendar on this last day of January.  We get going with the ADP Employment report which is looking for a private payroll number of 195.000 at 8:15 AM Eastern.  At 8:30 AM we get a reading on the Employment Cost Index where forecasters are calling for a 0.6% rise.  9:45 AM brings the Chicago PMI which forecasters are calling for a slight easing but still a very strong reading of 64.0.  The Chicago economy is at historic highs in data that goes back more than 50 years!  We get a reading on Pending Home Sales at 10:00 AM where the consensus expects a solid gain of 0.5%.  The EIA Petroleum Status comes in at 10:30 AM, and although there is no forecast, the trend suggests oil supplies will continue to decline.  The biggest report of the day will, of course, be the FOMC Announcement on interest rate policy at 2:00 PM Eastern.

Earnings reports continue to ramp up with over 150 companies reporting today.  Stay on your toes and have plans prepared for the companies you hold or are considering for purchase.

Action Plan

An ugly day for the markets yesterday with a big gap down and saw continued selling as the day progressed.  This morning futures are suggesting a bounce with the Dow currently showing about a 200 point gap up.  I have been suggesting for some time now to prepare for higher volatility, and I suspect it will make for challenging trading for several weeks to come.

As a result, expect bigger daily swings and overall point travel during the day.  Overnight reversals are common in this environment as well as intra-day whips that can be pretty dramatic.  We have several weeks so of earnings reports yet to chew through that will add to the uncertainty.  Today after the morning rush we could see the market become very choppy as we wait for the FOMC Announcement at 2:00 PM.  With overall market trends broken and so much whipped up emotion, it may be wise just to sit back and watch the show unless you are a very fast day trader.

Trade Wisely,

Doug