Volatility

Politically induced market volatility can be remarkably violent because of all the emotion whipped up in the press.  It reminds of the Chicken Little nursery rhyme where one minute the press seems to infer the sky is falling and the next minute reporting well, maybe not!  Such seems the case this morning as the trade war spin seems to have reversed over the weekend and cooler heads will likely prevail.  Who would have guessed? LOL.

Sadly it’s the poor retail swing traders that get damaged the most in these violent swings of market emotion.  As I have said several times over the last three months, retail swing traders have little to no edge in such a violently emotional market.  Trading accounts get chopped to pieces, and the traders have their confidence crushed in the turbulence.  Always remember that cash is a position and that you don’t have to trade every day to be successful.  Be patient your edge will return in due time.

On the Calendar

We begin this week on the Economic Calendar with only non-market-moving reports today.  The Chicago Fed Activity Index is at 8:30 AM Eastern with the Dallas Fed Mfg. Survey at 10:30 AM.  We have two Fed Speakers at 12:30 PM and 4:30 PM as well as four bound related events to complete the calendar day.

The Earnings Calendar shows 73 companies report results today.  It’s hard to believe, but Friday marks the end of 2018’s first quarter.  That means second quarter Earnings season is only about three weeks away.

Action Plan

Last week was a rough week for the market as trade war fears brought the bears out in droves.  The DIA and SPY closed at its lowest at its lowest level of the year so far this year.  The SPY closed Friday just below the 200-day average with the DIA missing that mark by only 1.5 points.  The QQQ’s fell more than 2.5% while the IWM dropped just over 2% on the day.

It would seem this morning that the tough talk with China was a move designed to bring them to the table to cut a fair trade deal.  Over the weekend pressure was added to China as a former Obama official said that President Trump’s concerns were valid.  China has already made moves to relieve some of the trade deficit imbalances, and both sides have expressed a willingness to negotiate over the weekend.  As a result, Dow Futures are currently pointing to a 275 to 300 point gap up this morning.  That kind of huge gap will put some serious pressure on short traders that held over the weekend forcing them to cover.  That means the conditions for a short squeeze exist this morning.  Volatility is very high so expect very fast price action with intraday reversals that could easily swing the Dow more than 100 points in just a few minutes.  It may be wild, but at least we will get some sweet relief from last weeks heavy selling.

Trade Wisely,

Doug