Economic Data Gone Wild

Ok, everyone. It’s a short week with lots of economic news. Time to stick closely to your trading rules and don’t take your eye of your positions.

Remember, I’m a short term trader and prefer to scalp intraday when I can. When I’m unable to participate throughout the day (yup, I have a day job), I’ll look to position myself into swing trades. Swing trading can be very profitable if and only if you stick to your rules. For me, that means setting strict stops and only holding as long as the technical setup is still intact.

Let’s get started:

Monday:
Existing Home Sales data will be released in the morning and could very easily move the market. Higher than expected is a positive sign for the economy, of course, and could move all stocks up.. including those related to home improvement, home builders, mortgage lenders and home furnishings companies. If you have an opportunity to scalp, check these sectors for some fun plays on Monday.

$LOW – breakout confirmed if moves over 22. that would be my swing entry.

Tuesday:
GDP data hits the street and will definitely shape the direction of the markets on Tuesday and beyond. Knowing that, I’ll likely try to be as cash heavy heading into Tuesday. Imagine the opposite – if I am heavy in stocks Tuesday morning, they could all take a hit… that doesn’t support the style of a day / swing trader. Let the news come out, then make your move – it’s safer and more predictable.

The four major categories of GDP — personal consumption expenditures, investment, net exports and government — all reveal important information about the economy and should be monitored separately. I’ll be interested to see the personal consumption number and how that looks against expectations. More spending, the better. When looking for plays specifically tied to GDP, find out how the four pillars performed against expectations (personal consumption, investment, net exports, and government). From there, build a list of stocks and industries that you expect to move if one of these areas reports well.

Example: Take personal consumption:
This is broken down into 3 parts – Durable goods (TVs, cars, appliances), non-durable(short life expectancy – food, clothes, shoes) and services (medical, insurance, haircuts). If the GDP report shows a drop in auto sales and the overall durable goods category, then it’s time to possible short Ford, or Best Buy or something along those lines.

Summary – GDP will likely move the markets on Tuesday… but understanding what happened in certain industries or subcategories of personal consumption is key to better trading. Put a list together of your favorite durable goods, non-durable goods and services stocks.. watch how they move together on PCE numbers.. your play will become more obvious and you’ll be focused.

Wednesday:
More reports than should be allowed are released on Wednesday. With all of this data.. and the fact that it is the last full trading day of the week, I will stick strictly to scalp plays. I want to get in and out of the news movers and be cash heavy for Friday.

New Home Sales data released:
Home builders have been hit really hard lately, which means a nice report could bounce them up for a few days. Nice swing / scalp opportunities. But, for swing trading, I need confirmation of a technical setup and move before I take a position. I don’t take a position hoping that I’ll beat a stock to the breakout. I join the breakout. So, for home builders, I’m not about to buy anything (charts are generally bearish) unless the report is good and we see volume buys coming into the entire sector. If all builders are moving up, I’ll look for the laggards for scalps, and industry leaders for swings. Watch $PHM and $KBH for industry direction.

$SNH is one of my favorite real estate plays. Chart is generally strong and we saw a nice move through 20 on Friday. This is more of a long hold for me and I will wait for a better price for that hold position.

$HOV – building on an ascending triangle, but be careful. HOV turned bearish Friday and would be a nice short if it the report is bad Wednesday (Monday’s report will influence, as well). Good report, I might swing long and hold with a tight stop under wedge. Ideally, looking for a 4.45 breakout with legs.

Consumer Sentiment:

This, to me, is one of the most important numbers released this week. Without a confident consumer, this economy falters. Good numbers here and you scalp pretty much anything and have a good trading day. Focus on stuff that people can buy and less on stuff they can’t.. like clothing and not biotech startup.

Other important reports released on Wednesday:

Durable Goods Orders