Friday’s whipsaw has caution flags flying high.

The Friday afternoon whipsaw was simply Nasty!  It left traders counting up losses on stopped out trades where just a couple hours earlier they had been looking at gains.  It also quickly spiked fear and once gain reminded us how dangerous complacency becomes at or near market highs.  At a minimum, Friday was a warning that we must always be at the top of our game and a “safe” market does not exist.  As for me, I will be approaching today’s market with extreme caution and a very watchful eye on price action.  Was this a one-off event or a warning of trouble ahead?  Only time will tell.

On the Calendar

The Economic Calendar begins with a whimper today but will roar like a lion by mid-week when the FOMC comes front and center.  Today, however, we only have a few bond auctions and the Treasury Budget that comes out at 2:00 PM Eastern.  Although it should be shocking that May is expected to produce an 87.0 billion dollar Federal deficit, it will pass without notice.  In truth 87.0 billion is a slight improvement over last years numbers.

On the Earnings Calendar only ten companies reporting earnings today none of which are overall market movers.  Always remember to check earnings on each and every stock you hold and are thinking about purchasing.  There is no excuse for being surprised by an earnings report.

Action Plan

Friday’s wild price action ride amounted to a very nasty whipsaw.  I ended up closing a couple of positions in response to preserve some small gains.  Caution lights began flashing all over the place as I looked through charts and that caution remains this morning.  Futures are currently pointing to a slight gap down open today but what we will have to pay very close attention to is how traders react after the open.

The VIX after hitting a new low record low Friday morning rather suddenly shot up 28% but settled up only 14% by the close.  That kind of volatility is difficult even the most experienced traders.  As a result, I am suggesting that new or struggling traders should stand aside, watch and wait.  Price action like this could turn out to be nothing, or it could be a warning of turmoil ahead.  I will manage my current positions, but I will be waiting for good price action clues before even considering new risk.

Trade Wisely,

Doug