The Ride Continues | Bulls on Wall Street

The Ride Continues

Get your roller coaster game face on!  The market continues to act erratic and struggle to find direction… and I don’t expect this to change anytime soon.

The last two days have seen short lived attempts by the bulls to move the markets up – just look at the SPY inverted hammers. These continued failed moves to the upside set us up for more likely moves to the downside – the weight is just too much. What’s going on here?  Simply put, Mr. Unknown is driving the direction of the market as traders sit on the edge of their seats in anticipation of the latest news out of Washington.   Even good news out of China didn’t hold us up today.

Expect a lot of mixed earnings messages: We are clearly entering a difficult earnings seasons to navigate, making it hard for swing traders to find direction.  In a traditional earnings season, we listen to what the sector leaders say about past results and, more importantly, future expectations.  This usually paints a fairly clear picture of what to expect and which sectors are in favor.  Well, things are different this time.

YUM reported good numbers today, BUT the growth was overseas.  Not good if you want the employment situation in the U.S. to improve.  In my opinion, the report just reinforces that most Americans are not spending.. even at Taco Bell.   It’s already becoming quite apparent that the earnings reports are going to be mixed and I expect exporters to do better than domestics.  CBST, VMI, JBHT, FCS, GOOG, JPM all report tomorrow with heavy emphasis on JPM before the market opens.

The Debt Ceiling: The problem, however, is not just the mixed messages that we’ll likely see from earnings reports.. the big weight on the market is, and will be, the debt ceiling debate in Washington.  I didn’t think it would be the case, but here we are.. we’ll likely be playing political games with each other all the way up to the  August 2nd deadline.  Even if we see beats from companies for the remainder of the month, I expect the market to have a heavy ceiling on prices until the dueling politicians settle their differences and media starts reporting that a compromise is likely.  The day the government makes a deal that will raise the debt ceiling, the market will move back up, excluding other factors.  Until then, I wouldn’t expect much.

To add more insult to injury, Moody’s warns of a possible U.S. debt downgrade.  Even though this was probably a politically controlled move today to encourage politicians to come to an agreement, it’s safe to say that this news, on its own, will gap us down in the morning. Adding fear to the market does 3 things.. causes sell-offs in equities, money moves to safety (gold), and usually speeds up  a resolution of whatever the fear is about.  In other words, fear gets to a breaking point where we either fix it now or all hell breaks loose.  Hopefully, we’re closer to a fix than the latter 🙂  If we don’t raise the ceiling, the market will fall hard – period.. so, why go long until we know?

Economic Data: The third piece of the puzzle headed into Thursday monring is the pile of data including Core Retail Sales, Core PPI, Initial Jobless Claims, etc. The market is already fearful, so bad data here could break us and push the remaining bulls out of the game in the near term.  If you just needed one reason not to over swing in this market, the Economic Calendar is reason enough.  Nervous markets move significantly around economic data.. think of the data as becoming high beta.

The charts:

SPY 30 minute shows a clear falling wedge and horizontal support around 131.40.  As mentioned earlier, JPM and economic data will toss us up and maybe out of the wedge.. or, we’ll see a dangerous fall under 131.40.. dangerous because there really isn’t much support nearby.   Next support looks like 129.80.

DBA – the other night I mentioned to watch DBA in this falling channel.  A move out of the channel might offer a buying opportunity, but also means that commodity prices are going up… bad for the economy.  So, today’s move – not good. We need to keep commodities in check.

In summary:

I’m cautious, to say the least… I’ll play whatever the market gives me, so I don’t consider myself a bull or a bear.. but, for now, the odds are leaning towards the negative and less towards the positive.  In order to remain comfortable and reduce risk, I’m not swinging.  This could all change tomorrow.. Maybe we’ll all be stunned with the economic data and JPM will blow out earnings.. but, I don’t see it.

See you tomorrow – watch your risk.  Trading is charts, but more importantly, it’s risk management and taking advantage of opportunities.  Maybe we’ll see a large pullback at the open creating some attractive bounce scalps before lunch.  Maybe not.

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