Wednesday, December 10, 2003
Issue Contents:
| 04:12 | Good Morning Headlines and reaction. |
| 05:31 | Paul's Watch List Stock picks for intraday and swing trades. |
| 05:37 | Daily Swing Trade Today's stock setups. |
| 13:16 | Futures Rollover Reminder. |
| 14:22 | Economic Data Roundup Today's key releases. |
| 16:16 | Active Trader Transcript Real time forum log. |
One of the great things about never sleeping is that time does seem to whiz by, mainly because one has no idea what day of the week it is by mid-week. The only thing I know is that the market is about to open again shortly, and it might be "all hands to battlestations" time.
Yesterday was one of the most turbulent post-FOMC trading periods that I've seen in a while, and so if you are needing the big picture analysis, we went over it in detail in the December 3 issue.
I just saw the following headline:
Nikkei Average Breaks Below 10,000
TOKYO (Reuters) - Japan's Nikkei average broke below 10,000 on Wednesday in a two percent fall to its lowest close in over two weeks, with chip-related issues hit by disappointing earnings in the industry and a robust yen hurting exporters.
Of course, this is most ironic seeing that the Dow was supposed to blast up through 10,000 only yesterday, a testament to the diabolical nature of the market.
Remember back in January 1990 when the Nikkei was at 38,900 and American business was officially pronounced dead in favor of keiretsu financial engineering? Remember we were all supposed to learn to speak Japanese and learn how to bow -- really, really low?
One bubble, one crash, and one decade later, who would have thought that financial engineering would morph into market cap based on the number of eyeballs glued to a website in the form of CMGI, which by the way, released earnings on Monday. Two bubbles and two crashes in two countries later, the term "corporate governance" is back in vogue and financial statements prepared according to U.S. GAAP are back in fashion, or is it?
Or maybe the most painful question of all is why all this stuff is stored in my brain and won't go away! Perhaps it will come in handy one day on a special episode of Jeopardy, speaking of which, I guess each day in the market is like being on a game show, isn't it?
Looking ahead to the rest of the week, I think today's 5-year Treasury Note auction and tomorrow's 10-year Treasury Note auction results will be closely scrutinized. We will see if the market itself is going to start hiking rates. Please refer to the Intermarket Roundup and the Treasury Futures analysis from December 1, if you need to look at the big picture.
This is Paul's intraday and swing trade watch list for Wednesday. He will review the setups in real-time at around 11AM Eastern.
BUY SCALPS:
- MEDI @ 27.97
SHORT SCALPS:
- WMT - intraday setups.
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.
****
First, let's update yesterday's picks.
For all the mindgames it played, we knew the script. No sooner said than done, NEM crashed to the downside target. Of course, the headline right now at WSJ.com is:
The Dow Jones industrials edged above 10,000 but then retreated after the Fed's statement, closing down 41.85 at 9923.42. Gold prices got a boost from continued weakness in the dollar.
This will lull all the gold bugs into holding on for a "deeper correction". You know what? Maybe it's toast, or maybe it ultimately goes higher, but in view of the job at hand, which is to swing trade for income by dealing with Greater Fools, we don't leave money on the table, not when it's a whack of hundred dollar bills.
MRK was unable to blast up through the overwhelming negative action post-FOMC, and formed an inside day. IF it cannot blast up today, THEN I will dump it before the close.
Exited the trade at the planned stop loss on ORCL.
Same story for AMGN. With overwhelmingly negative price action in the broad indices, it just could not overcome the selling.
Basically we expected that the upside setups would be dicey, and there were virtually no other setups, even on the short side. As you saw in the survey of NASDAQ Most Actives so many of these high-fliers have been going down for weeks after registering extreme ADX for the symbol and timeframe.
For example, so many of the daily charts such as INTC and AMAT below were already on a downswing on the way to the downside target at the 20-week EMA on the weekly charts, so there was no swing reversal to stalk for a new trade.
When there is no reversal of swing to stalk, we usually approach continuations in the direction of the swing seen on the daily chart as small scalps off the 10- or 15-minute intraday chart if we cannot find good setups in stock index or Treasury futures.
CSCO was Paul's pick from Monday which got a one day move before making a big reversal yesterday. Note that there is a big rising wedge formed here, so the first downside targets are the 20-day EMA below, which also happens to be the lower edge of the rising wedge. We can typically expect it to bounce a little on breach of the lower edge, and then we would look to stalk any upswing to position a short sale.
I'm sorry to say, but the only decent looking stocks that might be in the early stages of cracking are some of the Dow Industrials components, while most of the NASDAQ high-fliers are close to the weekly chart downside targets.
Now, we look at GM and ask ourselves why it looks like an internet stock? Well, the fundamental analysts have the answer:
Upgrade Drives GM to 52-week High
by August Cole, CBS.MarketWatch.comSAN FRANCISCO (CBS.MW) -- With U.S. stocks up nearly 20 percent this year, General Motors' longstanding pension burden is easing.
That improved outlook prompted Goldman Sachs to upgrade its rating on the automaker's stock, driving GM to a new 52-week high on Tuesday.
GM closed up $1.27, or 2.7 percent, at $48.41. The stock, a component of the Dow Jones Industrial Average, traded as high as $49.05 earlier in the session, and the Dow briefly surpassed the psychologically important 10,000 barrier.
Goldman Sachs analyst Gary Lapidus -- who upgraded GM to "outperform" from "in line" -- said the rebound in the stock market has raised the value of the holdings of company's long-suffering pension plan. That results in a narrower gap between what the company is obligated to pay and the value of its retirement-related assets.
"We believe rising earnings expectations for GM over the next few months can drive the stock higher, particularly in the face of strong economic numbers in early '04, driven by tax cuts and an improving job market," he wrote. On Dec. 3, Lapidus also wrote of the improving pension outlook for Detroit's GM.
Though guarded with his outlook, Lapidus now expects Detroit-based GM to earn $6.25 a share, up from his previous estimate of $5.20 a share. On average, Wall Street analysts expect GM to make $5.33 a share.
In the near term, GM stock could hit $60 a share, according to Lapidus.
There you have it. It's going higher because the market is higher. It's amazing what some people manage to take away from B-school, eh? Here in real life, this huge gap up might be part of an island reversal, and therefore, if yesterday's low of 48.14 is broken, sellers should be able to take control and force a test of gap on the downside in the 47.25 area.
We do note that there is NO extreme ADX reading on the daily, weekly or monthly charts at this time, so a swing trade on the short side would simply be a hit and run, in case of an island reversal.
MMM has formed a rising wedge here, and the swing trade would be to short it on break of yesterday's low. The first downside target is the December 1 swing high at 81.65 where if buyers to not come out, the next downside target is the December 4 swing low at 80.65.
This might be a case of "smoking kills". MO is in the classic Trader Vic 2B Test of Top formation, on extreme ADX reading for this symbol and timeframe. The swing trade setup is to sell on break of yesterday's low. Initial stop loss is yesterday's high, while the initial downside target is the 20-day EMA below.
UTX is testing an all-time high on the monthly chart, but closer to home, aggressive traders can sell short a small position on break of yesterday's low with an initial downside target of the November 7 swing high of 87.95. At that point, we'll see if buyers will come out again, and if not, the bonus is on.
That's all for today. I'm off to write that article on how to swing trade with options.
Tomorrow the front month moves to March for index futures.
MBA Purchase Applications 399.8 [Link]
Econoday reports: The Mortgage Bankers refinancing index fell sharply to its lowest level in 18 months, down 16 percent in the week ended December 5 to 1775.5. The MBA said the drop, which hit despite declining 30-year mortgage rates that now average about 5.75 percent, may reflect homeowner preference for adjustable and hybrid mortgages that take advantage of low short-term rates. The MBA's purchase index also dropped sharply, down 9.5 percent to 399.8.
5-Year Treasury Notes 3.375%
Econoday reports: In sloppy results, the Treasury auctioned $16 billion of 5-year notes at an awarded yield of 3.375 percent, 5.5 basis points lower than last month's auction. The when-issued yield at the bidding deadline was 3.360 percent, a disappointment to buyers of the auction. The bid-to-cover also indicated softness, at 1.92 vs. 2.27 last month.
Real time forum log.
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