Whiplash

Yesterday’s wild price fluctuations may have left many traders with a nasty case of whiplash.  Unfortunately, it looks like the volatility is here to stay and with more than 200 companies reporting earnings today and more than 300 tomorrow, anything is possible.

Looking at the market internally I believe, and short-term oversold condition currently exists.  However, with the likelihood of big morning gaps and nasty intraday whipsaws, profiting from this condition will be a very challenging and high-risk endeavor.  Just because the market is open is not a good reason to put capital at risk.  Only trade when you believe you have an edge and feel you can handle the emotional effects of high volatility.  Remember cash is a position and there is no shame in protecting your capital in times like this.

On the Calendar

The Economic starts early today with the MBA Mortgage Applications at 7:00 AM Eastern.  The Housing Price Index comes out @ 9:00 AM and then the PMI Composite Flash at 9:45 AM.   The New Home Sales report expects to hold steady with an annualized rate of 625,000 in September vs. 629,000 in August and is the most likely report to move the market today.  At 10:30 AM is the Petroleum Status Report which is also potentially market-moving however not forecast by consensus.  After that, we have a Fed Speaker @ 11:30 AM, a bond auction @ 11:30 AM, a Fed Speaker @ 12:30 PM, a bond auction @ 1:00 PM, another Fed Speaker, and the Beige Book @ 2:00 PM, finally closing the calendar day at 7:00 PM with you guessed it; another Fed Speaker.

On the Earnings Calendar, we have a very busy day with 227 companies stepping up to report.  Some of the notables are: ALXN, AMP, APH, BKU, BPOP, BSX, BXMT, CB, CHKP, CNI, COF, CSL, DTE, EQR, EW, FCX, GD, GRA, HA, HIW, HLT, IR, IRBT, ITW, JNPR, LH, MANH, NAVI, NDAQ, NSC, NYCB, OC, PB, QSR, RES, RHI, ROIC, ROL, RRC, SEIC, SIX, SMPL, STL, STM, T, TER, TMO, TPH, TRVG, TSS, TUP, TXN, UPS, VAR, WRB

Action Plan

After sinking more than the 500 points from Monday’s low, the Dow bulls managed to recover a good deal of its losses closing down just 125 points on the day.  All four of the major indexes made substantial recoveries, but unfortunately, some of those gains will be swept aside with the futures currently suggesting a gap down of more than 100 Dow points at the open.  As I mentioned in yesterdays note, expect lots of volatility, and so far the had delivered exactly that!

With more than 200 companies reporting earnings today and VIX holding above a 20 handle we can expect the wild price action to continue.  With daily triple-digit market gaps and large intraday whipsaws maintaining an edge for the swing trader is near to impossible.  If you do trade, I highly suggest smaller than normal positions to help reduce risk.  I also think it’s wise to take profits quickly because a market gap and instantly turn winners into losers.  Internally the market appears to be in a short-term oversold condition, but as we experienced yesterday, earnings can easily keep the bears engaged.

Trade Wisely,

Doug