Morning Market Prep | Stock & Options Trading | 2-8-18

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Walking a Tightrope

With price volatility high and potential failure patterns left behind, yesterday traders should be on high alert.  It’s as if the market is walking a tightrope where just one misstep could lead to a quick and painful fall.  At the close yesterday, the VIX was on the rise closing above 27 to display the rising trepidation of the current market conditions.  Currently, the DIA, SPY, and QQQ charts have bearish failure patterns at the 50-day moving average.  Personally, my hope is we can consolidate for several days to spill-off a bunch of this volatility but to ignore this pattern would be unwise.

On The Calendar

The Thursday Economic Calendar is full of non-market moving reports, bond events, and four Fed Speakers.  The only market-moving report comes at 8:30 AM Eastern when the weekly Jobless Claims number release.  Consensus expects claims to come in at 235,000 continuing to confirm strong labor demand.

On the Earnings Calendar, we have nearly 250 companies reporting.  Before the bell today we will hear from CVS, PM K, TWTR, and YUM to name a few.  After the bell reports from AIG, NVDA, ATVI, EXPE, SKX, and FEYE are a few keep traders on their toes.

Action Plan

Yesterday proved to be a choppy day of price action as the DIA, and SPY attempted to recover the 50-day moving average.  Unfortunately, by the end of the day, they were unsuccessful, setting up a possible Blue Ice Failure Pattern.  The QQQ also made a valiant attempt to hold the 50-day average only to give it up just slightly at the close.  Surprisingly only the IWM managed to hold on to a positive close but remains the weakest of the 4-major indexes.

The VIX tried moving lower but finished the day above 27 suggesting market volatility will remain challenging.  With the failures a the 50-day average its impossible to see anything other than a bearish pattern.  Morning Futures are currently pointing to a lower open at least initially confirming a Blue Ice Failure pattern.  However, there are a lot of earnings reports this morning that could improve or make worse the situation.  Combine the bearish pattern with high volatility, and the conditions for a perfect storm exist.  I recommend extreme caution as we head toward the weekend.

Trade Wisely,

Doug