Thursday, November 6, 2003
Issue Contents:
| 04:12 | Good Morning On fear... |
| 04:19 | Paul's Watch List Stock picks for intraday and swing trades. |
| 04:40 | Full Moon Daze We kid you not. |
| 05:11 | [$VIX, Weekly] CBOE Market Volatility Index A look at the NYSE market internals. |
| 05:23 | [$VXN, Weekly] NASDAQ Market Volatility Index A look at the NASDAQ market internals. |
| 05:29 | Floating the Boats Rising tide lifts. |
| 05:34 | Investor Watch List Five symbols added to the buy side. |
| 05:56 | Investor Watch List Six symbols added to the sell side. |
| 07:21 | Daily Swing Trade Setups for today. |
| 08:01 | Trader Watch List Six symbols added today. |
| 08:17 | Economic Data Roundup A summary of today's key releases. |
| 16:16 | Active Trader Transcript Real time forum log |
Well, at every important juncture, it's my job to pull the obligatory all-nighter and go through a couple of hundred charts, by hand. Why? Because when we look at these charts, we can see themes.
Of course, what would staying up all night be like without turning on the television for a sneak peak now and then? I saw two infomercials on CNBC, one about putting on option spreads on stocks and the other one on how to trade trends. The first one was interesting, because it told viewers that one don't have to know the direction and still make money, and "with as little as an 8-10% move in a stock, you can double your money." The other one had a testimonial, "I can make four thousand dollars a month without risking more than $5,000 at a time." Sigh.
Yesterday after the market, Cisco announced some good earnings and there was a massive spike in after hours trading. A friend of mine asked me what that was all about, and I said that it seems as the market gets into an advanced stage of froth, the fear of missing out on "the sure thing" becomes an extremely hard siren song to resist, and many retail investors will start buying outside market hours. Quite often, this is followed by a round trip by the open the next day. Of course, then it turns into simply the fear of losing money. Sigh again.
Today, the market is waiting on the Bank of England and the European Central Bank to make decisions on interest rates. The BOE is expected to raise rates a notch. We also have a few more numbers to get through on the U.S. Economic calendar before the week is out.
This is Paul's intraday and swing trade watch list for Thursday. He will review the setups for the Real-Time Trading Group at around 11AM Eastern.
BUY SCALPS:
- MSFT @ 26.33
- INTC @ 33.89
- AA @ 32.33
- NXTL @ 24.21
SHORT SCALPS:
- No symbols today.
Prices above are used as ALERTS to look for intraday entries. If you need additional ideas, don't forget that we have automated Stock Scan Lists as well.
****
There were many, many nights where after a long and insane day in the market, I would walk home under the full moon light.
According to The Old Farmer's Almanac, the next one is due this Saturday, November 8.
[$VIX, Weekly] CBOE Market Volatility Index
It's been a while since we looked at $VIX. One reason is because the 5-period RSI, the indicator that is used for several of the VIX Reversal setups documented by Larry Connors, is more of an oscillator. That means if it is overbought or oversold, it can stay there for a while. Traders who have tried to outpsych the wiggles and squiggles of the RSI know exactly what I'm talking about.
$VIX and NYSE 52-WEEK NEW HIGHS Weekly: Where we can use the RSI is when there is a divergence. Right now, you can see on this chart that while $VIX has pushed lower, the 5-period RSI made a higher low just before going above the 30 line, meaning that we should be on the lookout for upside movement on the $VIX. Most of the time, an increase in fear means that market is more prone to the downside. I think the only question that is left open here is if there will be one more push downward in $VIX on the daily chart, in case there is a short squeeze/blowoff type of price action on some of these NASDAQ stocks.
If you look at the number of NYSE 52-week new highs, you can see that it's making lower and lower highs, which is what technicians call "narrowing of leadership", meaning that the number of stocks that are still happening on the upside are going lower and lower. It's usually seen as weakness, but in my experience, while it is certainly true that a broad index cannot count on going up on only a handful of movers, it's a fact that as the move on the upside gets stretched, investors and traders tend to stick with the safe names, therefore reducing size in "lesser quality" issues.
[$VXN, Weekly] NASDAQ Market Volatility Index
$VXN and NASDAQ 52-WEEK NEW HIGHS Weekly: Well, this is painting the exact same picture with a divergence in RSI and $VXN, plus the narrowing of leadership from the lower number of new highs.
The point of this is that if you're an investor, it's time to make sure you know where the exit door is, just in case the crowd starts to stampede.
SUNW Daily: As they say, the rising tide lifts all boats. When investors are coming on late in the game, they typically pick the also rans, or even what we referred to at the office as "pig dogs", because they are cheapers and of course, perceived to be of lower risk. And so Sun is back.
AKAM Daily: Back from the dead.
The rising tide is lifting all boats. Even SUNW and AKAM have formed bull flags on the daily chart.
Yes, the Gods must be crazy for me to bring these four up, but the fact is that for long-term investors looking for capital gain, they have to at least make a college try to buy low and sell high, rather than buy high after a multimonth rally and hold the bag.
SGP Monthly: Well, this is a plunge for sure, and with ADX at 42 on this timeframe, it's been a hell of a crash. And of course, eventually they stop. We'll add this one to the watchlist, in case it sets up a long-term buy over the next month or two.
SGP Weekly: We drill down to the weekly chart and we can mark out the descending wedge here. The only thing left is to watch it and see if this is a "wedge as reversal" setup OR if this is the "Elliott Diagonal (Running) Triangle" formation that leads to a panic breakdown at the tip of the wedge to form the selling climax.
AFFX Monthly: Another round tripper, all locked in a triangle. Surprise will be the upside breakout.
PFE Monthly: You can see the theme emerging -- quite a few triangular congestion areas in drug and biotech stocks. Something will give and it will start trending.
SWY Monthly: Yep, it's scary but it's true. This is a test of bottom in a multi-year decline. If it can make a higher low here, we can almost see this $25.50 area as a neckline of a head and shoulders bottom...
BRCD Weekly: A little saucer dish/ledge formation. Will the bargain hunters find this one and make it squeeze up?
You saw the first theme, the triangular congestion areas on monthly charts of some very boring stocks, but eventually they will come to life.
The second theme that shouted out from the rooftops were weekly charts that registered extreme ADX for the symbol and timeframe. There seems to be one group with ADX in the 30s and one group with ADX in the 40s and 50s.
When ADX is in the 30s, it tells me that while the uptrend has been in place for a long time, it hasn't gone up in that parabolic rocket fashion, meaning that if it pulls back in that timeframe, market participants will still feel comfortable buying it, believing there is still one more push up.
When ADX reaches the mid-40s, it enters a zone where the more extreme reading it ultimately registers, the more we know that it's been going straight up like fireworks shot into the air, and the probability of "sudden death/spike top/supernova" is much higher, since market participants will be more afraid to buy it after seeing a spike high, since it's just too violent. And not enough buyers means...well, you know, no bids, should those who already own it try to exit en masse.
Please remember that it is extremely difficult to pick spike tops, mainly because of the velocity upwards coupled with the suddeness of The End. No bell will ring. I remember writing a piece on QCOM, just two days before the all-time high in January 2000 where I said that in order to do it, I would need a pipeline to the Almighty. That said, the information is still useful, since avoiding a catastrophic loss is a good thing.
EA Weekly: We've gone thorugh this one in our Daily Swing Trade section. Note that after the spike high, we've seen two "inside weeks"? This is the part where they are holding their breathe, praying it will go up. Quite often, you see one more attempt, but it makes a lower high that fools them into thinking it's a triangle, which then proceeds to NOT resolve upward.
AMZN Weekly: Same story here. We've seen the spike and the first thrust downward. Now after the pause, we'll see if that was it.
FLEX Weekly: M Test of Top.
SYMC Weekly: Potential spike top in the making, on extreme ADX for this symbol and timeframe.
SBUX Weekly: ADX getting up there, on ever shrinking volume.
RFMD Weekly: ADX starting to get there, with upside target at $14. But this one is a cheapie and maybe they come to snap this one up too. There's a lot of room between ADX 41 and ADX 50.
First, let's go over yesterday's list.
CSCO Daily: As discussed, the knife cuts both ways, and before going into an announcement, it's always tricky. What we have here is a big spike after the numbers, but it's down from the high. Let the smoke clear on this one, but obviously going back under the September 19 swing high in the $21.56 would be an extreme negative.
MEDI Daily: Extreme ADX for this symbol and timeframe, setting up a potential spike bottom/short-covering bounce. Action price lowered to $25.70 to BUY NOVEMBER 25 CALLS with an initial stop loss of $25.00.
SINA Daily: Got a little move in our direction, but was disappointed that the stock was not available to short at InteractiveBrokers.com. If you bought the NOVEMBER 45 PUTS, my suggestion is to move the stop loss down to $42.15, which is yesterday's low plus the 5-day ABL value.
MRK Daily: Same as MEDI but more extreme ADX for this symbol and timeframe, setting up a potential spike bottom/short-covering bounce. Action price is $44.24. The usual procedure is to wait a few minutes for the smoke to clear as it hits the action price, and then buy NOVEMBER 42.50 CALLS with an initial stop loss of $42.50.
NOTE: Next up are two stocks with a setup from the StreetSmarts book, the 20-day high, Turtle Plus One short sale setup, in case this is a fake upside breakout.
QLGC Daily: The daily and weekly charts do NOT have extreme ADX readings, so I think it would be best to approach this one intraday. If the Turtle Soup sell stop just below the October 30 swing high of $58.30 is hit, then we will go and look at the 15-minute chart for setups to participate. If it continues upwards, we will look for pullbacks above the October 30 swing high off the 15-minute chart to buy.
SBUX Daily: Both the weekly and daily chart are in the extreme ADX zone for this symbol and timeframes. Same Turtle Soup setup. Look for sellers if price goes back under the October 30 swing high of $32.00. Same strategy. I think it's best to trade this intraday if setups come on the 15-minute chart. Look for pullbacks above 32.00 to buy and bounces below 32.00 to sell.
PMCS 15-Minute: While the daily and weekly ADX is not extreme, intraday this one went to the extreme and sets up the "ADX divergence" trade off a rising wedge pattern. We'll see if it can pull back for a quick hit and run intraday.
Let's move on to make a watch list, since the last bunch are grouped under the "breakout" theme...
ERTS Daily: We know the weekly is on extreme ADX. Daily, it's cracked but we don't want to take a million stabs at it on the downside. We'll just wait for a break here.
FLEX Daily: Weekly entering overdone territory, and in case we need it, here's a neckline. It's also intersecting the 20-day EMA and the 50-day MA. We'll see if this 14.50 area becomes resistance. Now, since this is so "cheap" in price, the late comers might end up buying this up.
DELL Daily: Weekly chart ADX is at 33. There is room for one more push on the upside, but we'll just wait until that happens. Or play any "surprise" downside reversal.
BEAS Daily: Another "cheap" stock with ADX at 25 on the weekly, so there is room for the upside. Just watching this one for now.
AMZN Daily: Like ERTS, this one has "cracked" and ADX on the weekly chart is extreme. Already scalped it once on the short side, and don't want to stab at it repeatedly. I think both ERTS and AMZN are forming a tiny stealth classic bear flag here and they are so far unable to punch up through resistance overhead. We'll be watching for downside acceleration.
RFMD Daily: Weekly ADX getting up there, but it's a "cheapie" so they might buy it up to $14 first. In any even, this is a tiny pause here, so the surprise will be a failure to move up.
OK, that's it for today's picks. Phew!
LONDON (Reuters) - The Bank of England has raised interest rates by a quarter point to 3.75 percent, the first increase by any of the world's top four central banks in more than three years.
The BoE said in a statement accompanying its decision that the housing market and consumer spending had remained stronger than it had expected. Given this, and the fall in sterling earlier this year, underlying inflationary pressures were expected to build up gradually. Rates had been at a 48-year low since July, when the central bank cut them by a quarter-point because of worries about the weakness of the global economy, which is now showing signs of recovery.
The European Central Bank did not raise it's key rate at today's meeting, as expected, remaining at 2%.
Quotes from Econoday.com:
Jobless Claims 348K
In what could be an unusually strong indication of economic strength, weekly jobless claims fell a sharp 43,000 to 348,000 in the week ended November 1. The level is the lowest in 33 months, a time before the 2001 recession hit, and compares with expectations for a level of 380,000. The end of supermarket and transportation strikes in Los Angeles, however, skewed the data lower...The four-week average, more important than usual this week, fell 10,000 to 380,000. The four-week average is at its lowest total since March 2001. The data are certain to impact the financial markets, especially the bond market.
Third Quarter Productivity +8.1%, Unit Labor Cost - 4.6%
U.S. productivity in the third quarter of 2003 soared by 8.1 percent after jumping 7.0 percent in the second quarter of the year. This was below analysts' expectations. When compared with last year, productivity has risen by 4.7 percent. Manufacturing productivity increased 8.6 percent in the third quarter. In durable goods industries, productivity rocketed 14.7 percent. In nondurable goods industries, productivity was up a more sedate 2.3 percent.
Unit labor costs plummeted 4.6 percent rate in the third quarter after sinking 3.2 percent in the previous quarter. Analysts had expected unit labor costs to fall by 4.5 percent. Labor costs are 1.9 percent lower than the third quarter of 2002.
Real time forum log
Click on the title above to expand this document.