Thursday, October 2, 2003
Issue Contents:
| 07:40 | Good Morning... |
| 07:52 | Paul's Watch List |
| 08:03 | On the Bounce |
| 08:38 | [$SPX, Multiple TF] S&P 500 Index |
| 09:07 | [TYZ3, Daily] 10-Year Treasury Bond Futures |
| 13:46 | Cool New Feature is Online |
| 16:16 | 2003-10-02 Transcript for Real Time Trading Group Real time forum discussion: 2003-10-02 Transcript for Real Time Trading Group |
Yesterday, we set up the $VIX reversal buy signal on the daily chart of most of the major stock indices for our subscribers.
To me, it's always interesting how it's reported in the news. For example, at WSJ.com, they called it:
Shares Rocket On Optimism Over Earnings
Stocks shrugged off their September losses and staged their biggest one-day gain since June, with the Dow Jones Industrial Average jumping 194.14 points amid renewed hopes for earnings and the economy.
The immediate spark was a report from the Institute for Supply Management that manufacturing activity continued to grow in August, with new orders particularly strong. That offset fears that the economy was cooling down, which had helped drive stocks down.
A broader factor, traders said, was that many money managers expect to see strong profit gains when companies release quarterly earnings over the next few weeks. For those optimists, the late-September swoon represented a chance to buy stocks cheaply.
What you never see is a headline like the one below:
Short Covering Fuels One-Day Surge
After a seven-day downswing capped by Tuesday's big expanded range bar that saw investors dump a boatload of stocks on Q3 un-window dressing, the short-term oversold market set up a $VIX reversal signal at potential support at the 50-day moving average. Once Tuesday's highs were taken out, short-covering began in earnest, luring buyers on the sideline to jump in, fearful that they would miss the next move up, if it happens.
This is Paul's intraday and swing trade watch list for Wednesday. He will review the setups for the Real-Time Trading Group at around 11AM Eastern.
BUY SCALPS:
- No symbols.
SHORT SCALPS:
- NSM @ 32.26
- SYMC @ 63.49
- HON @ 26.24
- ADBE @ 38.99
Prices above are used as ALERTS to look for intraday entries. If you need additional ideas, don't forget that we have automated Stock Scan Lists as well.
****
Yesterday, we went over the daily charts of most of the major stock indices. It really wasn't that hard to figure out that Tuesday was a big panic dump. Just look at the volume.
Now that the bounce is on, we need to look at resistance areas overhead, which was marked out for each index. In general, there are several key areas to watch. Let's use the S&P 500 as an example.
$SPX DAILY: Known resistance overhead were the September 12 swing low and the 20-day EMA overhead. Yesterday's price action quickly took out the SPX 1007 level, and with the big expanded range bar up, we would normally expect a consolidation sort of day, unless massive short-covering continues.
We put our trusty fibo ruler on the last swing to measure the bounce, and it's exceed 50% of the downswing. To me, this means that the bounce is too strong to stalk a short sale in this timeframe, because it reduces the probability that it can go back to Tuesday's low within a few days unless really bad news comes from any of the remaining economic data slated for release this week.
[$SPX, Multiple TF] S&P 500 Index
To expand on our analysis of the major stock indices, let's continue on using the $SPX as an example.
$SPX DAILY: You'll recall that the rising wedge marked out by the dotted blue lines was our operating theory, but there was also a reason to suspect that the wedge might be larger to encompass price action going back to June 2003. With the strong thrust off the 50-day MA, which is what we see as the area where the "buy-the-dippers of last resort" take action off the daily chart, we can now use Tuesday's swing low in a big round number area such as 1000 as a connecting point for the lower edge of the larger wedge.
$SPX WEEKLY: We knew that the 20-week EMA was just under 1000 on the weekly chart, and this was a potential support area too. If we place the daily rising wedge in context of the weekly chart, we can identify a few upside targets. The first is the easy one, a test of the September 19 high in the 1040 area. If it can somehow get past the first target, the only other target overhead would be the point of breakout of the last leg of the downtrend back in May 2002, in the 1100 area.
$SPX MONTHLY: We can fine tune the upside target a little more using the monthly chart with Japanese candlestick theory by using the high of a big black bar, and we get 1070 as the next upside number.
So, it will be intersting to see if this is a rising wedge which typically fails on test of the apex, meaning that the September 19 high will present significant resistance. If it somehow blows through on the upside, the E-wave community will be all excited, because they see this as a diagonal/running triangle that sets the stage for the big Wave 5 high and crash. In case you missed it, check out the last post we made on September 22, Heard on the Street.
[TYZ3, Daily] 10-Year Treasury Bond Futures
We haven't looked at the Treasury futures for a while, and it always happens like this. When I show up, there is a reversal signal waiting for me. In our last post, we showed you how Japanese candlesticks were used to indentify areas of potential resistance on the $SPX monthly chart. We can use the same technique on the daily TY chart, and mark off the July 15, 2003 high as resistance, and so it was no suprise to see a the two-bar harami pattern form on Tuesday and Wednesday's price action, followed by a reversal today.
At this point, the Treasury futures have made a tremendous post-crash bounce, and even though it's a day by day affair with the non-farm payroll numbers due out tomororw, it's not surprising to see sellers materialize.
Mike has just put our search feature online. It's on our right hand navigation, called "Search TrendVue".
2003-10-02 Transcript for Real Time Trading Group
Real time forum discussion: 2003-10-02 Transcript for Real Time Trading Group
Click on the title above to expand this document.