Shock-waves

Yesterday I wrote that the market was looking for inspiration and the bears certainly found it during the CAT conference call. During the call, CAT pointed to the first quarter as the high water mark for the foreseeable future, and that sent shock-waves through the entire market.  Stocks that were enjoying nice bullish moves but quickly reversed as bearishness spread across most market sectors.

In yesterday’s note and morning prep video, I mentioned how important it was for the bulls to recapture the 50-day average or it would open the door for the bears.  That turned out to be correct, but I have to admit I was surprised by the violence of the move.  As a result, lower highs in the DIA, SPY and the QQQ are now confirmed raising the possibility of a retest of April lows.  Futures are pointing to a follow-through gap down this morning to drive home the point that the bears are back in control.  With so many earnings reports on the calendar, more shock-waves are certainly possible.

On the Calendar

A light Wednesday on the Economic Calendar with only one market-moving report.  At 10:30 AM Eastern the EIA Petroleum Status Report could be very important for the market today in the light of yesterdays sell-off.  Oil and oil stocks have enjoyed a strong bullish move due to the tension in Syria and the drop in supply numbers from the last status report.  Other than that we have a Mortgage Applications report at 7:00 AM and 2-bond auctions that finish the calendar day.

The Earnings Calendar nearly doubles from yesterday with 245 companies slated to report results.  Yesterday certainly proved that the market reaction to earnings reports can be violent and unpredictable.

Action Plan

With more than 600 earnings reports yet to come we must be prepared for a bumpy ride.  I mentioned yesterday to stay focused on price action and remain flexible, but holy cow yesterday’s bearish reaction to mostly good reports was shocking.  The major selling seems to have triggered during the CAT conference call when they referenced the first quarter as a high point and expect results to diminish looking forward.  Your guess is as good as mine as to how that statement translated into a broad-based selloff.

Dow futures are currently pointing to gap down by more than 100 points, and the VIX appears set to break its current downtrend.  Please keep in mind that as the market chews through all the coming reports that anything is possible.  While the move yesterday may have seemed irrational, please remember it can remain that way much longer you can stay liquid.  Set your bias aside stay focused on price action and follow it rather than fight it.  Expect the bumpy ride to continue with fast price actions and possible intraday whipsaws that could quickly reverse direction.

Trade Wisely,

Doug