Whipsaw

Once again the market is set for a pre-market whipsaw of more than 100 Dow points.  Traders that entered short positions based on the bearish patterns below the 50-day average in the DIA, SPY, and QQQ may be forced to by to cover if the bulls remain strong after the open.  Overnight whipsaws are incredibly difficult to trade unless you’re capable of picking a direction, placing your bet, closing your eyes and letting it ride.  Tough to do and consequently times like this can chop a traders account to pieces.

One way to handle such volatility is to plan trades of a smaller size to limit your risk.  Placing a trade of half or even a quarter of your normal trade size can help a trader better deal with the whipsaws and fast price action.  If the trade does move in your favor, you can always add to the position.  If you find yourself trapped by an overnight reversal, you may still have to take a loss, but small losses are much easier to recover from and not as psychologically damaging.  Remember trading is not a sprint, it’s a marathon.

On the Calendar

The Economic Calendar hits the ground running this Monday with four potential market-moving reports.  The most important report, Retail Sales, is released at 8:30 AM Eastern which forecasters expect a 0.4% increase in the headline number with ex-auto sells less robust at 0.2%.  Also at 8:30 AM is the Empire Stae Mfg Survey that consensus suggests will remain very strong with a reading of 18.2 in April while declining slightly.

At 10:00 AM Business Inventories are expected to show a 0.6% rise in February inventories remaining very strong.  Also at 10:00 AM the Housing Market Index is expected to show home-builder confidence remains steady with a 70 print in April according to forecasters.  Then at 4:00 PM, Treasury International Capital reports the demand for long-term U.S. Securities, but there is no forward-looking forecast for this report.  We have one Fed Speaker at 1:15 PM and three bond events to round out this busy calendar day.

On the Earnings Calendar, there are 45 companies reporting today with SCHW and JBHT before the bell, but all eyes will likely focus on the first to of the FANG stocks to report, NFLX after the bell.

Action Plan

I have to admit to being a little disappointed that the strong earnings reports of C, JPM, and WFC were not enough to dissuade the bears from selling into the close on Friday.  The potential of a Syrian military response by the U.S. proved stronger than these big banks beating on both the top and bottom line.  The bearish engulfing candle patterns under the 50-day average certainly are a concern and if price action follows-through to the downside it would confirm a lower high in the current downtrend.  However, the current futures are pointing to substantial gap up at the open as the bulls try to prevent follow-through selling.

With the Dow Futures suggesting another overnight reversal of around 150 points, price volatility remains high and difficult to trade.  Traders currently holding positions should expect big price swings and whipsaws to continue as we challenge the strength of index resistance levels.  Slipping into a wide range consolidation is certainly possible around the 50-day average.  Plan your risk carefully.

Trade Wisely,

Doug