Monday, December 1, 2003
Issue Contents:
| 02:47 | U.S. Economic Calendar This week's key economic releases and earnings highlights. |
| 03:41 | Paul's Watch List Stock picks for intraday and swing trades. |
| 09:20 | Daily Swing Trade Today's Setup |
| 10:02 | [Daily] Market Internals Market volatility and new highs. |
| 10:20 | [Daily] Stock Index Roundup A look at $INDU, $SPX, $NDX, $SOX, $HUI, $DXC. |
| 12:52 | Economic Data Roundup Summary of today's key releases. |
| 13:03 | [Multiple Timeframes] Treasury Futures Major technical update of TYH4 and USH4. |
| 14:25 | [Weekly] Intermarket Roundup Update on gold, the Dollar and long-term interest rates. |
Monday, December 1
Federal Reserve: G.5 Statistical Release, Foreign Exchange Rates
Earnings Highlights: MCDTA, DCI, JOSB, WBD
- 10:00AM ISM Manufacturing Index
- 10:00AM Constructions Spending
- 1:00PM 3-Month Treasury Bill Auction
- 1:00PM 6-Month Treasury Bill Auction
- 4:00PM Motor Vehicle Sales
Tuesday, December 2
Federal Reserve: 6:20AM Basel II, Geneva, Switzerland.
Vice Chairman Roger W. Ferguson Jr. makes a speech at The International Centre for Business Information's Risk Management Conference.
Earnings Highlights: ADCT, NAV, ADEX
- 7:45AM BTM-UBSW Store Sales
- 8:55AM Redbook
- 9:00AM Bank of Canada Interest Rate Announcement
- 10:00AM Challenger Job-Cut Report
- 1:00PM 4-Week Treasury Bill Auction
Wednesday, December 3
Earnings Highlights: CMVT, PLL, FORG, CWST, CPY
- 7:00AM MBA Purchase Applications
- 8:30AM Productivity and Costs
- 10:00AM ISM Non-Manufacturing Index
Thursday, December 4
Earnings Highlights: NSM, DG, BTH, CASY
- 7:00AM Bank of England Interest Rate Announcement
- 7:45AM European Central Bank Interest Rate Announcement
- 8:30AM Jobless Claims
- 11:00AM Chain Store Sales
- 3:00PM Treasury STRIPS
- 4:30PM Money Supply
Friday, December 5
Federal Reserve: 3:00PM G.19 Statistical Release, Consumer Credit
Earnings Highlights: ABS, RDEN
- 8:30AM Employment Situation
- 10:00AM Factory Orders
- 3:00PM Consumer Credit
NOTE: FOMC Meeting Scheduled for Friday, December 9
This is Paul's intraday and swing trade watch list for Monday. He will review the setups for the Level 4 Active Traders at around 11AM Eastern.
BUY SCALPS:
- VOD @ 23.42
SHORT SCALPS:
- ERTS, Intraday Play
- MO @ 51.50
- ALTR @ 25.08
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.
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We do not have any setups to bring forward today, due to the holidays. With a holiday-shortened trading session like last Friday, the number of stocks that show up on our lists shrink drastically due to low volume.
INTC, Daily: The best one I could find on the admitted skinny list is Intel for a swing trade, in case it can break out of the pennant to the upside.
INTEL, Weekly: On the weekly chart, you can see that this whole move has been a small bull flag. While ADX is extreme for this symbol and timeframe, the upside target remains a test of the November 7 high of $34.51. The extreme ADX reading simply decreases the probability that it will be reached, so buys should both reduce size and tighten up the initial stop loss in response to prevailing conditions.
INTEL, Monthly: We've pointed out how so many of the stocks have already reached the last important swing high on the upside. INTC is one of the few which hasn't so, one more upside target is the January 2002 swing high at $36.78.
PLAN OF ACTION: To enter the potential breakout, we use last Wednesday's swing high of 33.74 as the alert trigger. We would like to use a small pullback (bull flag) above this level on the 15-minute intraday chart to enter. The initial stop loss will be placed just under 33.74, to prevent being trapped in a fake breakout.
CBOE MARKET VOLATILITY INDEX, Daily: The last short-term $VIX reversal that we identified on November 21 was dead on, and we note that the 5-day RSI has gone back under the 30 line, and threating to creep up again. This sell signal would be better if we see $VIX thrust down today, to touch the lower Bollinger Band. Meantime, we continue to see a lower number of 52-week new highs on the NYSE, as expected. As a move up gets old, the number of stocks that make new highs tend to decrease, as the move narrows to a handful of big names.
NASDAQ MARKET VOLATILITY INDEX, Daily: Same story here, just like the $VIX. We note that the number of new highs are shriking too, and on the last swoon down, the number of new 52-week lows actually starting to creep up...
DOW JONES INDUSTRIAL INDEX: Four day bounce since the $VIX reversal buy signal on the daily chart. Targets a test of the November highs. We have also marked out the immediate trading range with a pair of horizontal lines around the last swing high and low.
S&P 500 INDEX: Same as the $INDU, but just a little stronger. As we write, the $SPX has hit the upside target and taken it out by a touch. This is a new 20-day high, and should the $SPX trade back under the November 14 swing high at 1063.65, sellers will come out on the Connors Turtle Soup short sale setup.
NASDAQ 100 INDEX: Same setup as the $INDU.
SEMICONDUCTOR SECTOR INDEX: Buyers of the big retracement pattern (ABC Correction into the 20-day EMA) get their upside target.
GOLDBUGS INDEX: Note that this daily chart is showing the largest Average True Range reading this year. It tells us that the move up is now "leaping and bounding", meaning that it's in what we call the "parabolic phase" where people are literally diving in. I will be looking to exit my personal gold holdings somewhere on this move up and that includes all the bullion purchased in 2000 in advance of Y2K, and my long-term position in Kinross Gold.
DOLLAR INDEX: Longer-term, we expected the major target on the downside would be in this 90 area, and we know that because gold is denominated in Dollars, it is spiking up as the Dollar spirals down.
ISM Manufacturing Index 62.8%
Econoday reports: The November ISM manufacturing index soared to a level of 62.8 percent, significantly higher than predicted by economists. This was the highest index level since December 1999 and bodes well for the manufacturing sector. Most major components were above the 50 percent level, including new orders, production, and supplier deliveries. Employment rose to 51.0 in November from 47.7 in October and is finally beginning to reflect increases rather than declines.
Construction Spending +0.9%
Construction expenditures jumped 0.9 percent in October, more than expected by analysts. September's increase was unrevised at 1.3 percent. Residential construction spending continued to post strong gains in October - up a vigorous 2.2 percent after climbing 1.5 percent in September and 2.1 percent in August. Spending is 7.0 percent higher than a year ago. Private nonresidential construction expenditures fell back 2.1 percent after jumping 1.6 percent in September.
3-Month Treasury Bill Rate 0.925%
Econoday reports: The U.S. Treasury auctioned $16.0 billion of 3-month bills at an awarded yield of 0.925 percent, 1/2 basis point below last week's auction. The bid-to-cover ratio was a solid 2.45 vs. 2.46 last week. The 3-month yield has hardly budged despite the rush of strong economic data, reflecting conviction in the Federal Reserve's commitment to keep down overnight interest rates.
6-Month Treasury Bill Rate 1.03%
NOTE: Have you noticed the language being used? Everything is "surging" and now the Fed has a "commitment" to keep overnight rates down? GAK! Maybe I was asleep during Economics, but in a recovery and expansion, aren't long rates expected to rise, and therefore, why count the pennies on the short end of the yield curve when in all likelihood, big dollars are about to be lost on the long end? It must be me...Econoday reports: The U.S. Treasury auctioned $16.0 billion of 6-month bills at an awarded yield of 1.030 percent, 2.0 basis points above last week's auction. The bid-to-cover ratio was a moderate 2.05 vs. 2.18 last week. The yield on the 6-month bill remains stable and rangebound despite sharply improving economic data, reflecting conviction in the Federal Reserve's commitment to keep down overnight interest rates.
[Multiple Timeframes] Treasury Futures
It's been a while since we last looked at Treasury Bond and Note futures, so let's take a good look, starting with the daily chart.
MARCH 2004 TREASURY NOTE FUTURES: We've seen the upper and lower edge of the old triangle tested, but no breakout took place. We can adjust the edges of the triangle to make it larger.
MARCH 2004 TREASURY BOND FUTURES: Same here. The upper and lower edges that we originally drew were simply tested and the moves faked. On this last run up to test the upper edge, it failed and is now headed toward the lower edge as the congestion zone simply expands. Eventually, there will be a move, but we will have to wait until it comes.
MARCH 2004 TREASURY NOTE FUTURES, Monthly: The main point here is that ADX reached an extreme reading for this symbol and timeframe. The pink arrow is what we have to watch out for, since almost every single broken parabolic move has this signature pattern -- a lower high after a spike top -- that makes you think that it's a pennant that will resolve higher. Instead, it is a reversal made on a lower high where once the lower edge -- the "neckline" -- breaks, the next big leg down is when all the fundamentals materialize and the man on the street will know why owning bonds makes no sense in the foreseeable future. That's when the reversal becomes a trend, and the move down becomes a stampede down a one-way street.
MARCH 2004 TREASURY BOND FUTURES, Monthly: Same comments as for the Treasury Notes, except the long end was weaker at the top, as expected, because speculation moved to the 10-year.
MARCH 2004 TREASURY NOTE FUTURES, Weekly: If we drill down to the weekly chart, this is the neckline that we've had on this chart for ages. The scenario is still alive.
MARCH 2004 TREASURY BOND FUTURES, Weekly: Same comments as the Notes.
If you are an Active Trader subscriber and have followed the links in the chain of posts on Treasuries over the past few months, you know that our main concern at this juncture is that bonds are at the Sell of a Generation. Let's take a look at charts of other mania tops.
TOKYO TOPIX INDEX, Monthly: Just a quick walk down memory lane, to make sure that we all know what a Sell of a Generation looks like.
NASDAQ 100 INDEX, Monthly: Another day, another Sell of a Generation.
It doesn't take a rocket scientist to read headlines of reports like the annual flow summary by AMG Data, posted January 15, 2003:
2002 Inflows Highest on Record to Bond Funds-Lowest to Stock FundsIn 2002 Taxable Bond funds reported the largest inflows on record ($133.5 Billion) with just under half (48%) going to funds investing in Corporate Bonds. Investment Grade Corporate Bond funds reported inflows of $43.0 Billion, the largest of any sector.
Equity Funds reported net cash inflows of $11.7 billion, the smallest since AMG began reporting investor fund flows (1992). The sector reported net cash inflows of $81.4 billion from January through May and net cash outflows of $69.7 billion from June through December. The largest inflows were reported by:
- Small Cap Growth funds ($18.8 billion);
- International Equity funds ($10.4 billion);
- Equity Income funds ($6.2 billion).
- The largest outflows were reported by:
- Large Cap Growth/Value funds ($12.3 billion; 1.4% assets);Technology funds ($6.7 billion; 20.4% assets).Municipal Bond Funds report record inflows ($20.2 billion).
- Money Market fund assets stand at $2.3 Trillion.
One interesting source of infomation is the Investment Company Institute Mutual Fund Connection, which makes the numbers public, free of charge. Let's walk down memory lane...
October 1998
|
Oct 98 |
Sept 98 |
% chg |
Oct 97 | |
|
Stock Funds |
2,651.5 |
2,482.8R |
6.8 |
2,276.0 |
|
Hybrid Funds |
343.8 |
332.3R |
3.5 |
306.5 |
|
Taxable Bond Funds |
514.6 |
515.5R |
-0.2 |
436.6 |
|
Municipal Bond Funds |
294.9 |
295.2R |
-0.1 |
265.2 |
|
Taxable Money Market Funds |
1,131.0 |
1,086.1R |
4.1 |
883.6 |
|
Tax-Free Money Market Funds |
186.5 |
180.8R |
3.1 |
155.1 |
|
Total |
5,122.3 |
4,892.7R |
4.7 |
4,322.9 |
February 2000
|
Feb 00 |
Jan 00 |
% chg |
Dec 99 | |
|
Stock Funds |
4,221.1 |
3,951.9R |
6.8 |
4,041.9 |
|
Hybrid Funds |
360.7 |
368.7R |
-2.2 |
383.2 |
|
Taxable Bond Funds |
530.0 |
527.7R |
0.6 |
536.5 |
|
Municipal Bond Funds |
266.7 |
266.2R |
0.2 |
271.6 |
|
Taxable Money Market Funds |
1,466.7 |
1,446.6R |
1.4 |
1,408.7 |
|
Tax-Free Money Market Funds |
214.4 |
212.5R |
0.9 |
204.4 |
|
Total |
7,059.7 |
6,773.5R |
4.2 |
6,846.3 |
November 2002
|
Nov 02 |
Oct 02 |
% chg |
Dec 01 | |
|
Stock Funds |
2,818.6 |
2,659.5R |
+6.0 |
3,418.2 |
|
Hybrid Funds |
332.0 |
316.7R |
+4.8 |
346.3 |
|
Taxable Bond Funds |
775.7 |
760.3R |
+2.0 |
630.1 |
|
Municipal Bond Funds |
322.2 |
323.3R |
-0.3 |
295.0 |
|
Taxable Money Market Funds |
2,028.4 |
1,908.4R |
+6.3 |
2,012.9 |
|
Tax-Free Money Market Funds |
278.2 |
269.1R |
+3.4 |
272.4 |
|
Total |
6,555.1 |
6,237.2R |
+5.1 |
6,975.0 |
June 2003
|
June 03 |
May 03 |
% chg |
Dec 02 | |
|
Stock Funds |
3,031.5 |
2,958.5R |
+2.5 |
2,667.1 |
|
Hybrid Funds |
373.3 |
365.8R |
+2.1 |
327.4 |
|
Taxable Bond Funds |
908.8 |
897.4R |
+1.3 |
796.6 |
|
Municipal Bond Funds |
339.7 |
341.3R |
-0.5 |
328.5 |
|
Taxable Money Market Funds |
1,873.6 |
1,854.7R |
+1.0 |
1,997.2 |
|
Tax-Free Money Market Funds |
291.1 |
285.9 |
+1.8 |
274.8 |
|
Total |
6,818.0 |
6,703.6R |
1.7 |
6,391.6 |
October 2003
|
Oct 03 |
Sept 03 |
% chg |
Dec 02 | |
|
Stock Funds |
3,441.3 |
3,228.5R |
+6.6 |
2,667.1 |
|
Hybrid Funds |
403.6 |
388.2R |
+4.0 |
327.4 |
|
Taxable Bond Funds |
895.7 |
897.0R |
-0.1 |
796.6 |
|
Municipal Bond Funds |
331.6 |
334.3R |
-0.8 |
328.5 |
|
Taxable Money Market Funds |
1,790.1 |
1,812.1R |
-1.2 |
1,997.2 |
|
Tax-Free Money Market Funds |
288.6 |
287.9R |
+0.2 |
274.8 |
|
Total |
7,150.9 |
6,948.0R |
+2.9 |
6,391.6 |
DOLLAR INDEX, LONDON AFTERNOON GOLD FIX, 30-YEAR TREASURY BOND YIELD, Weekly: While eyes are all on the Dollar and Gold, because it's so exciting, people are not watching the big pennant on the $TYX. We've already seen the fake "deflation" breakdown", and now, a pennant, which is a setup for a surprise move to the upside. Upside in the Treasury Bond yield would mean a move down in the Bonds themselves, and higher interest rates.