The bears woke up!

The bears woke up.  We all knew the day would come when the bears would launch a full-scale assault.  Unfortunately, they used the cover of night to attack making it difficult for the retail trader.  As bad as it may initially seem let’s keep in mind good earnings are continuing to come in, and the bulls are unlikely to give up easily.

Those who chased stocks that were well within their run will suffer the most this morning.  Those that took profits along the way and reduced the number of positions held will likely experience some losses today but it should not too punishing.  It would not be at all out of the question to the Bulls mount a strong defense after the open.  Keep in mind the buy the dip crowd could rush in creating a short squeeze.  Although the this is the very first bearish follow-through day of 2018, remember it’s not the open that matters it’s how we close the day that does!

On the Calendar

Tuesday’s Economic Calendar starts off with the beginning of the 2-day FOMC meeting.  It’s the final meeting with Yellen at the helm.   At 9:00 AM Eastern the Case-Shiller report is expected to show a solid 0.6% gain.  The consensus is for the unadjusted year-on-year rate to come in at 6.4%.  Consumer Confidence is out at 10:00 AM is exp[ected to come in at 123.4 up slightly from the December reading of 122.1.  We have an another 10:00 AM report on Investor Confidence which is unlikely to move the market, a couple of bond auctions and Farm Prices report at 3:00 PM.

On the Earnings Calendar, there are just over 110 companies reporting today.  Before the bell, we will hear from PFE and MCD after the bell JNPR steps up to report.

Action Plan

The Bears decided to make an appearance yesterday closing all four of the major indexes lower on the day.  Technically the DIA got the worst of it closing below the Monday’s strong candle.  SPY and the QQQ faired much better only producing inside candles while IWM closed near the low of its consolidation pattern.  Unfortunately, the Bears waited to mount their full-on attack in the overnight session pushing the Dow futures down more than 200 points.  As I write this, the bulls managed to recover some of the overnight losses, but currently, the Dow Futures point to a gap down of 150 points.

It would appear that at the open we will see the very first follow through by the Bears this year.  Keep in mind this is earnings season, and the bulls are not likely to give up easily.  Although this may be a painful morning, try not to panic and keep in mind a strong whipsaw rally is possible assuming earnings continue to come in strong.  Remember the first move lower from a top is not where the real selling is likely to occur.  Expect some fast price action this morning as volatility spikes at the open.  We all knew this day was likely to come and that is why we plan.  Avoid making emotional decisions follow your plan.

Trade Wisely,

Doug