Signs of Stress

The NASDAQ and Russell revealed signs of stress on Friday closing the day with bearish engulfing candles and breaking short-term supports.  With the VIX showing signs of fear stating bubbling up it would be wise to approach the market with a little caution this morning.  More than 1000 companies report this week volatility is likely to be high with fast price action, morning gaps, and intraday whipsaws.

If that’s not enough, we have a busy Economic Calendar which includes an FOMC meeting and a significant number of potential market-moving reports.  Return your tray tables to their upright and locked position and make sure your seat belts are fastened securely because the odds of turbulence are high.  Plan your risk carefully.

On the Calendar

Pending Home Sales will kick off the market-moving reports this week at 10:00 AM Eastern.  Consensus suggests we will see an increase of 0.8 percent recovering from a 0.5 percent decline in May.  We have Dallas Fed Mfg. Survey @ 10:30 AM, three bond events between 11:00 & 11:30 AM, with Farm Price at 3:00 PM to close the calendar day.

We have another really big week of earnings with Monday’s calendar showing 152 companies stepping up to report.  CAT & L are among the reports before the bell with AABA & NTRI included coming in after the bell.

Action Plan

The DIA and SPY managed to hold on to their trends cling to current price support levels.  However, the QQQ and IWM gave up short-term supports with big bearish engulfing candles that suggest at a minimum a lower low is possible today.  Asian markets closed down across the board last night while European markets look to follow suit with the FTSE, DAX & CAC all lower this morning.  Of course, anything is possible with so many companies reporting before the bell, but the US Futures are currently pointing to flat open.

With the Nasdaq and Russell clearly showing signs of stress and the VIX indicating an increase in fear I would suggest approaching the market with a little caution.  A good round of reports this week could easily lift us out of danger, but with the indexes, so close to the edge, a few key reports could easily push them off.  Keep a close eye on price action for clues and plan to see whipsaws and some fast price action as we wrap up July.

Trade Wisely,

Doug