As last week unfolded, we saw the bulls firmly in control on very light volume, but unable to break above the trading range still. If the trend holds, we are going to start falling shortly. If we do, and I’m becoming skeptical if we will this week, I don’t feel we will fall all the way to the bottom of the range. This move up has woken up many hibernating bulls, so I would anticipate that pullbacks could be bought aggressively.
Last week, we did not want to rush to buy as we can’t trust this volumeless move up. We have surprisingly stayed near the top of the range all week long without a pullback to rest and reset. Volume has been very light though and the action has felt like mostly computers/HFT running the show, not bullish moves from large institutions rushing to deploy cash effectively creating a strong bottom to build from.
This week will be interesting as we have data and headlines galore. Over the weekend, we had a G20 summit which resulted in nothing surprising. A plan is expected to be formed for the Euro crisis by October 23rd, so keep that date on your calendars and consider reducing overall portfolio risk this Friday rather than gambling on the news.
We have many earnings reports this week as well and some banks are reporting, which has many market players concerned that earnings and/or guidance could disappoint. Both Citigroup (C) and Wells Fargo (WFC) report before the open on Monday, so expect some last minute premarket volatility. After the close on Monday we will be focusing on International Business Machines (IBM). Options expiration is also this week and many bears are holding a significant amount of puts/sold calls that will create pain if they can’t get a pullback to relieve the pressure.
The economic calendar is below. Much of the data the first three days will be focused on. The end of the week has the usual initial claims data to watch for and the Philly Fed data on Friday will be in focus.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Oct 17 | 08:30 | Empire Manufacturing | Oct | -5.0 | -4.0 | -8.82 | ||
| Oct 17 | 09:15 | Industrial Production | Sep | 0.1% | 0.2% | 0.2% | ||
| Oct 17 | 09:15 | Capacity Utilization | Sep | 77.5% | 77.5% | 77.4% | ||
| Oct 18 | 08:30 | PPI | Sep | 0.3% | 0.2% | 0.0% | ||
| Oct 18 | 08:30 | Core PPI | Sep | 0.1% | 0.1% | 0.1% | ||
| Oct 18 | 09:00 | Net Long-Term TIC Flows | Aug | NA | NA | $9.5B | ||
| Oct 18 | 10:00 | NAHB Housing Market Index | Oct | 14 | 14 | 14 | ||
| Oct 19 | 07:00 | MBA Mortgage Index | 10/15 | NA | NA | +1.3% | ||
| Oct 19 | 08:30 | CPI | Sep | 0.3% | 0.3% | 0.4% | ||
| Oct 19 | 08:30 | Core CPI | Sep | 0.2% | 0.2% | 0.2% | ||
| Oct 19 | 08:30 | Housing Starts | Sep | 575k | 595k | 571K | ||
| Oct 19 | 08:30 | Building Permits | Sep | 600k | 610k | 620K | ||
| Oct 19 | 10:30 | Crude Inventories | 10/15 | NA | NA | 1.344M | ||
| Oct 19 | 14:00 | Fed’s Beige Book | Oct | |||||
| Oct 20 | 08:30 | Initial Claims | 10/15 | 400k | 404k | 404K | ||
| Oct 20 | 08:30 | Continuing Claims | 10/08 | 3700k | 3690k | 3670K | ||
| Oct 20 | 10:00 | Existing Home Sales | Sep | 5.10M | 4.94M | 5.03M | ||
| Oct 20 | 10:00 | Philadelphia Fed | Oct | -5.0 | -9.6 | -17.5 | ||
| Oct 20 | 10:00 | Leading Indicators | Sep | 0.3% | 0.3% | 0.3% |
Another sign which I consider bullish is that market player participation seems to have increased significantly. The amount of emails and live-chat participation has grown tremendously this past week as bulls tend to pop up when things get better, but go on vacation when bear markets show their heads. Now I’m not saying start recklessly buying over this indicator, I’m merely saying it’s something to take note of.
I’m still holding and actively trading around a core position in ProShares UltraShort S&P500 (SDS) and as you can imagine, I’m holding some red still as the market just won’t pullback even when logic says it should. I continue to trade a core position taking advantage of intraday pullbacks and buying nears highs of the day so I can continue to cost average down. I’ve taken profits in my longs which reduces my losses from SDS and have kept to mostly day trading new positions, but initiated a new long position on Friday morning. I caught some bullish volume and block purchases in Targacept, Inc. (TRGT) as it nears resistance and after quick review, I decided to add this as a new position which helps even out my short-side risk in my portfolio. It has some active put volume, but The chart shows a slight advantage to breaking out in the short-term which is all I care about, as I’m not looking to add anymore stocks to my long-term positions. I’ll discuss more about TRGT in another article if Monday holds up and my stop-loss is not triggered. Keep in mind this is a stock which doesn’t have sustained volume every minute so the price can fall on no volume for brief periods of time like we saw in the second half of Friday, so adjust your stops and strategy for that.
So, be prepared for a wild ride this week that could create swings in both directions as all the data/headlines comes from all directions. I’m cautiously optimistic for the bulls, but we can’t discount the large need for a healthy pullback to reset some charts and allow more bulls to deploy cash.
As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long SDS and TRGT but positions may change at any time.
