Rules trump hope. 

Even though the price action suggested more bearishness yesterday, I must admit I was hoping for a stalemate that would hold on to the 50-day average.  Rules trump hope.  Obviously, the market could care less about what we hope for and if we try to stand and fight the market will always win.  For now, the market has chosen to remain in turmoil and fear is back on the rise.  Stick to your trading rules they are there to protect your capital from you and your emotions.  With the VIX rising price action will remain challenging with big opening gaps and violent price swings.  Let the big boys fight it out and wait for your edge to return.

On the Calendar

On this first day March we again have a busy Economic Calendar day.  At 8:30 AM the Jobless Claims are expected to come in at 230K as labor demand continues.  Personal Income and Outlays also out at 8:30 AM this morning.  The PCE price index is expected to rise 0.4% in January for a year-on-year rate of 1.7%.  Consensus expects personal incomes to rise 0.3% but consumer spending is expected to pull back slightly only gaining 0.2%.  9:45 AM brings the PMI Mfg Index report is expected to come in at 55.7 in February vs. 55.5 in January.  At 10:00 AM the ISM Mfg Index has a February consensus of 58.9 vs. the 59.1 January reading.  Also at 10:00 AM is the Construction Spending report which consensus suggests should come in with a rise of 0.3% in January.  Our new Fed Chairman Jerome Powell will speak the Senate Banking Committee at 10:00 AM and Dudley speak at 11:00 AM.

We have just over 225 companies reporting today according to the Earnings Calendar.

Action Plan

During the majority of the trading day yesterday the bulls and bears seemed equally matched, and we were chopping in a narrow range.  I was hopeful we could hold in a small range and see some claiming in the market, but obviously, the bears had other plans.  The last 30 minutes of the day the bears launch a full-on attack causing a failure of the 50-day average on both the SPY and the DIA.  The VIX quickly rose closing just below a 20 handle as investor fear spiked.  The Dow managed to hold on the psychologically important 25,000 level by just 29 points.

Unfortunately, the Dow Futures are currently suggesting a gap down of more than 100 points at the open piling onto the overall market fears.  The DIA, SPY and the IWM are now technically set up for a possible retest of the February lows.  Let’s hope the bulls call in some reinforcements draw a line in the sand and hold onto a higher low.  Expect very fast price action today and be prepared with a plan to protect your capital.

Trade Wisely,

Doug