Textbook | Bulls on Wall Street

Textbook

Update after original post – this could help the market tomorrow on possible drop in dollar.

Good evening, team Bulls.

Yup, textbook technical reversal today. Even with the good earnings reports, the market faded all afternoon on continued worries about the debt ceiling and other issues I’ll get to below.

Before I dive into my market thoughts, I have to say Boyah, Cramer style, on the strong move in ISRG today. One of my all-time faves. OK.. got that out of my system; let’s move on.

What does the big picture tell us about today’s action and what we can expect the for rest of the week?

Let’s hit the facts:

  • Housing numbers sucked this morning, proving once again that we can’t count on housing to push up the economy.  It appears that housing will follow, not lead.
  • Earnings have been good, BUT the outlook from some of the market leaders has been mixed.  As discussed last week, earnings OUTLOOKS are more important than whether they hit their estimates, or not.  Most have been hitting/beating, but look at INTC‘s report today.. strong, yes, but the stock is down after hours because of their outlook on the PC market.  From CNBC:

Intel topped forecasts for both earnings and revenue, which the company attributed to strong corporate, mobile and emerging market demand. But the stock fell as the company slightly lowered its outlook for the PC market.

  • The debt ceiling is still in focus and center stage
  • Tons of data tomorrow.  If you’re looking for a good reason for today’s fade into close, here it is.  Since trading is about minimizing risk while maximizing opportunities, today was NOT a day to swing heavy. Why?  Too many variables.. in other words, too much risk.  Tomorrow’s Phili Fed number is very important..VERY.  Let’s not forget we’ll also see Initial Jobless Claims, Continuing Jobless Claims, Bloomberg Consumer Confidence, and CB Leading Index.

So, let’s put it all together from a risk standpoint:

Risk is back OFF and volatility remains giving day traders a huge edge over swing traders.  Tomorrow, alone, economic data could move us in either direction.  Earnings could do the same. And, the big hammer (debt ceiling) could smash us to new lows or propel us to new highs.  In other words, hell if I know where we’re going in the near term.  However, having said that, I do think it would be very wise to stay very close to your long watch list.  If the debt ceiling is raised, I believe we have a bull run.  Until then, I’m not looking to take too many trades home with me at night. Instead, I’ll watch the Boom Factory where the real action is.. Swing traders will get their edge, I just don’t see it yet.  Some will work and some won’t.

Technically speaking.. textbook:

My debt ceiling theory is holding for now as SPY failed on two attempts today to move through the horizontal resistance I’ve been constantly referring to lately (see chart).  Three things can move it above, in my opinion: Massive Phili Fed Number tomorrow, big surprise from the job numbers, or the debt ceiling being raised.  I think the only way we move above and STAY above is the third  – debt ceiling raised.   Earnings will become much more important once we get economic data out of the way…notice that earnings haven’t really done much for us, even with AAPL.
So, what’s next for me?  I will continue to build swing watch list just in case the doors open up to the long side and less uncertainty takes over.  At the same time, I’ll have my finger on GLD call options if all hell breaks loose.  Yes, you can short stocks or play TZA if the market falls apart. I have no issues with that -I’ll try to play TZA as day trades in that environment, as well.  However, taking advantage of GLD option volatility can be very rewarding (but, be careful).
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