Who invited the Bears?

Okay, we had a nice little bull party going on; who invited the bears?  It seems everywhere you look we see Bearish Engulfing candles and nasty failure patterns in the charts.  Is it really that bad?  First, let’s remember that Bearish Engulfing candles must follow-through in the next period to confirm.  Without that confirmation, it’s nothing more than a day of profit-taking.  Secondly, let’s step back from the hard right edge and notice that only the DIA has failed to break out into an uptrend.  I pointed out yesterday that the index has moved up so many days in a row that rest or pullback was possible.

Please understand I’m not saying that to try and pat myself on the back for a correct call.  What I’m trying to demonstrate is that if you remove emotion and study the price action, the answers are usually there.  No prediction just simple observation.  So, who invited the bears?  The king of all indicators, Price Action.

On the Calendar

There are some big reports on the hump day Economic Calendar.  At 8:30 AM we have two potential market-moving reports with PPI and Retail Sales.  Consensus suggests the headline will come in up 0.2%.  Remove food and energy, and it is expected to rise 0.2% while trade services move up 0.3%.   According to forecasters, Retail Sales should snap back after declining in January with a 0.4% February expected increase.  Remove autos and gasoline, and they see a 0.4% increase.   Business Inventories at 10:00 AM should see a sizable build of 0.5% in January giving a boost the inventory component of GDP.  Last but not least is the Petroleum Status Report which is on forecast but obviously critical the prices of oils stocks.

On the Earnings Calendar, I see 122 companies stepping up to report quarterly results.  Stay on your toes as this earnings season finally begins to lighten up after this week.

Action Plan

The bears stepped in yesterday producing a slew of reversal patterns on all four major indexes on Tuesday.  At the close Bearish Engulfing candles were left behind on the QQQ, IWM, SPY.  The DIA was also under pressure one again failing at the 50-day average but managed to hold just above the physiological 25,000 level on the Dow index.  It was pretty grim as I looked through my watchlists last night seeing lots of potential topping patterns and blue ice failure patterns all over the place.

One would naturally expect the bears to follow through today with another push lower today, but the premarket futures are indicating a willingness of the bull to fight back.  As I write this, the Dow Futures are pointing to a gap up of about 80 points at the open.  However, with all the early earnings news and important economic reports coming before the open anything is still possible.  Everywhere I look in the charts I see clues of bearishness, but for some reason, my gut is telling me the market wants to go up.  That’s not a prediction; it’s merely a feeling that of course will have to be confirmed by price action.  Price is king and always will be.

Trade Wisely,

Doug