Morning Market Prep Feb 14, 2018

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Danger still lurks.

Although short-term rally has eased tensions and provided some sweet relief, danger still lurks.  It’s so easy to become fixated on the hard right edge of the chart and getting lost in the intra-day gyrations in price.  If we take a critical look at an index entire chart, we have several important clues that should have you on the edge of your seat.  First and most obvious is that all the major indexes are in a current downtrend.  The rally is testing not only the downtrend but also some very significant price resistance levels.  Also, we are still below the 50-day average, the T-line, and that the 34 EMA is dangerously close to dropping below the 50.

Trust me I want to market to resume its uptrend as much and anyone else.  However, if I allow that bias to cloud my view of the potential dangers displayed in the chart, I’m failing as a technical analyst.  Always take the time to look at the big picture and remember Price is King!

On the Calendar

The hump day Economic Calendar has four important reports.  Inflation hawks will be keeping a very close eye on the Consumer Price Index which comes out at 8:30 AM Eastern.  The consensus is looking for a gain of 0.3% on the month but also expecting the yearly rate to slightly decline.  Also at 8:30 is Retail Sales where forecasters see an overall moderate 0.3% gain.  Then at 10:00 AM we get the Business Inventories Report which forecasters expect an increase of 0.3%.  The EIA Petroleum Status report is at 10:30 AM.  They don’t forecast this number, but the last 2-reports have shown a build in supplies, a 3rd would begin a trend hurting oil-related stock prices.

On the Earnings Calendar, I show just about 180 companies will report results.  Make sure your check and planning for these events to avoid undue risk to your account.

Action Plan

The market spent another day chopping sideways taking a break from the huge daily price moves.  On the positive side, the bulls were able to shrug off the morning gap down and close just slightly higher.  On the negative side, the market continues to deliver triple point gaps daily and remains under price resistance and the 50-day average.  At the close yesterday, the VIX drifted just below 25 but seems stubbornly resistant to a pullback keeping traders on their toes.

The CPI this morning could be very import today to determining market direction.  A print below 2.0 could bring out the bulls while a number over 2.0 could bring out the bearish inflation hawks.  Currently, the Dow Futures are pointing to 100 point gap up, but that could quickly change if inflation raises its ugly head.  Please keep in mind that all the major indexes are below significant price resistance levels.  Which means a failure pattern near resistance is still possible which could once again inspire the bears.  Extreme caution is still warranted as we approach resistance with high volatility.

Trade Wisely,

Doug

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