Tuesday, December 9, 2003
Issue Contents:
| 03:38 | Good Morning Not again... |
| 04:04 | Paul's Watch List Stock picks for intraday and swing trades. |
| 05:41 | Ratio Charts REAL relative strength. |
| 07:03 | Daily Swing Trade Today's setups. |
| 07:22 | GAK! Full moon alert! |
| 07:24 | NASDAQ Most Actives Survey of SNDK, AMZN, SANM, BRCM and ALTR. |
| 07:47 | A Quick Break Sure, sure... |
| 12:44 | Dow Industrials Survey of component stocks EK, HPQ, IP, JPM, KO, SBC, T, WMT and MSFT. |
| 14:48 | FOMC Statement Key rates unchanged. |
| 16:16 | Active Trader Transcript Real time forum log. |
| 16:57 | Economic Data Roundup Summary of today's key releases. |
Yep, I can feel another all nighter coming on, but the good news is that today is FOMC day where we can expect things to be quiet ahead of the announcement at 2:15PM Eastern so if I should pass out just as dawn breaks, you know what happened to yours truly.
Maybe it should be a New Year's Resolution to not work during the wee hours, but alas, the West Coast time zone is the eternal culprit so there will be no rest for the wicked.
Late in the night, I always find disturbing articles on the Internet. For example, it's been a bad school year for kids here in Vancouver. There have been machete attacks, swarmings, and last week, a teenager was killed in racial violence in what used to be an ordinary working class neighbourhood. Things are getting out of hand. Take a look at this article from Time.com:
Does Kindergarten Need Cops?
The youngest schoolkids are acting out in really outrageous ways. Why?Temper tantrums are nothing new in kindergarten and first grade, but the behavior of a 6-year-old girl this fall at a school in Fort Worth, Texas, had even the most experienced staff members wanting to run for cover. Asked to put a toy away, the youngster began to scream. Told to calm down, she knocked over her desk and crawled under the teacher's desk, kicking it and dumping out the contents of the drawers. Then things really began to deteriorate. Still shrieking, the child stood up and began hurling books at her terrified classmates, who had to be ushered from the room to safety. [Link...]
Maybe someone should mention that it might be possible that these behavioural problems are likely linked to the horrible diets of french fries and chicken nuggets that so many kids eat on a daily basis. For all we know, it's too many bad fats and not enough good ones (fish, flax) causing the brain to scramble like a plate of eggs. Makes me feel like screaming.
This is Paul's intraday and swing trade watch list for Tuesday. He will review the setups in real-time at around 11AM Eastern.
BUY SCALPS:
- No symbols.
SHORT SCALPS:
- WMT @ 52.69
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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Most people know about "relative strength", Welles Wilder's RSI indicator, that is, but few people know that if you really want to measure "strength relative", you need to use a ratio chart. That's right, a ratio chart.
I did a quick google search and found 19,500 entries for "relative strength index", all of which were related to the indicator and 4,370 entries for "ratio chart", 99% of which had nothing to do whatsoever with the capital markets. This is bizarre. I guess the generic name is so long-forgotten that we have to invoke the name of William O'Neill and CANSLIM to jog the market's collective memory.
I thought it was appropriate to show you the ratio chart panel because last Friday's CNBC SquawkBack Poll showed that 67% of the voters believed that the Dow would get to 10,000 in December, and when we add the 24% who think that it will get there next year, that's a whopping 91% that believe that it will get there shortly. Is that bullish or is that BULLISH!
In this chart, we have plotted the Dow Jones Industrial Average and then compared it against a number of other benchmarks.
Why don't we draw some lines and take a closer look. We can see that over the past few days, the Dow has is starting to outperform the broad indexes such as the S&P 500 and the NASDAQ 100, and has really popped against the Semiconductors.
Oh no! Does this mean that only 30 stocks are leading the way? Yikes! Isn't that the narrowest advance? Or is the "weak dollar" doing wonders for the potential earnings of these multinational companies? I'm watching the Dow Industrials vs. the Gold Bugs. You just never know...
Let's update our picks from yesterday.
If it feels like NEWMONT MINING is playing mind games on us, it's because the move up in gold and gold stocks is now registering ADX readings that are extreme for the symbols and timeframes on the weekly charts. The explanation for yesterday's scalp setup was complicated because the probabililty of "sudden death" is probably the highest it's been in a long time, and therefore we cannot expect buy setups to get to where they are
"supposed" to go.
For example, NEM did not get to the upside target of the December 2 swing high and went down yesterday. This might be the first signal that the quick and dirty small bull flag just doesn't have enough power to get there, and that a deeper pullback in the form of a classic bull flag or an ABC Correction lies in wait. If there is a meltdown, I will play it intraday.
You can see that the weekly chart has an ADX of 50, while last week's candlestick, for all intents and purposes, was a small doji after a big expanded range tall white candle. Remember, when the ADX is extreme for the symbol and timeframe, we are mindful of "sudden death" spike top sort of reversals, which we wrote about a month or so ago when we surveyed the weekly charts of many of the top NASDAQ stocks.
The buy stop on MERCK was triggered and the stop loss should be raised to around $42.90, which is the December 5 swing low. We want to see it have a followthrough day on the upside and see if it can upfill the gap left overhead. If it does manage to blast up and through, I will likely take my money on this trade before the day is out.
The buy stop alert for ORACLE is moved down to $12.93 and I will be using DECEMBER 12.50 CALLS should it be triggered, with an initial stop loss at $12.58. (I haven't forgotten about the article on how to use in-the-money options to swing trade...)
I really, really tried to find some good setups here, but the weekly charts suck so badly that I think it must have some sort of effect on the probability that the setups on the dailies -- particularly the ones that have been going up for months -- can even get to target. You'll see shortly when I post the weekly charts.
You know that we are surely scraping the bottom of the barrel when we have to go for setups like this, but there are a lot of biotech and drug stocks that are a little overdone on the downside, so they might be able to perk up here if there is rotation into these sectors. This is a test of bottom here on AMGEN and it's a test of bottom. We would be looking to see if some shortcovering can materialize, aiming for the 20-day EMA overhead in the $59.36 area. Using options, we would have to set the buy alert at yesterday's high of $58.50 and purchase DECEMBER 55 CALLS a few minutes after the alert is triggered with an initial stop loss at $57.22. I would like to see it close up on decent upside price action to at least confirm that something is happening, or it might be something that we would not take home overnight.
NEXTEL bull flag is trying to launch. My suggestion is to probably scalp this one intraday since the setup on the daily chart was already triggered when I saw this one.
There is a big potential spike top here on the weekly chart...
That's it for today.
I told you that working late is a bad thing. I just looked up and there it was, a big huge full moon.
It was on November 6 when we gave the heads up on the big picture that there were a bunch of stocks that needed to be watched closely. I just went through a ton of charts, and here is the theme. I'll post the charts first, and you can see if you can see it yourself.
SANMINA presents with an extreme ADX reading for this symbol and timeframe on an "ADX divergence". Dark cloud cover pattern.
ALTERA comes back to test the old swing high and to see if old resistance has become new support. Also sports an "ADX divergence" after an extreme reading. Bearish engulfing candlestick pattern.
BROADCOM fails on a test of top, and forms a bearish engulfing candlestick pattern on the weekly.
AMAZON made a lower high after the bounce off the 20-week EMA blow. A not-so-perfect dark cloud cover pattern is formed on the failure at $55.
SANDISK cratered as expected. This is the classic extreme ADX spike top, failure bounce, and crash.
THEME: Weekly charts are failing on the leaders, and so we have to tread carefully on the daily charts, in case these are bigger reversals in the making.
I went through all the components of the Dow Industrials and have a bunch of charts that I will go over later in the day.
I'm going to do that "put my head down for an hour" thing. Hopefully, I will wake up...
It's been a long time since looked at the big picture monthly charts of the 30 components of the Dow Industrials. I've picked out a few that should be on a watchlist in case they start creeping up.
Yes, it's hard to imagine that the first stock up is EASTMAN KODAK. This is very interesting because it is now threatening to go back above the point of breakdown. If it can move up from here, I think buying might begin to creep in.
Here's something we never thought we would see HEWLETT-PACKARD look like this. I know we can make all sorts of arguments that this whole thing is a (bearish) rising wedge, but I think we have to draw that line just under $25 just in case this is a neckline of a head and shoulder's bottom.
I feel like an old-timer just brining up INTERNATIONAL PAPER. I mean, it's like talking about ol' Bessie (Bethlehem Steel), but the fact is that we have a big triangular congestion area here, so if it starts to go, it might be a good one.
This is a very tiny pennant on JP MORGAN CHASE after a big reversal. If this one starts to go, we need to be on the ball to get on board.
Even COCA COLA is looking like it can move to the upside. After making a higher swing low three months ago, we have upside potential here to the $50 area, where it will then test the downtrend line. A breakout would be the bonus.
This is a pennant, something that you would normally expect to resolve in the direction of the prevailing trend. In this case, SBC COMMUNICATIONS would be expected to resolve to the downside. The exception would be where a downtrend has been in place for eons such as this, where the surprise would be if it didn't, and therefore, shorts will cover while new buyers will show up if it can start creeping up.
Even the dreaded AT&T might be able to pull off a surprise. You can see that it's also a tiny pennant similar to SBC. We know the fundamentals are terrible, and that's why refusal to go lower, and slow creeping up would be a sign that it's time to nibble.
In the "stuck in a triangle" category is WAL-MART STORES. We don't know which way it's going to go, but I think the upside would be the surprise direction.
The other one that is stuck in a triangle is MICROSOFT. I'll be the first person to admit that it looks terrible, but of course, this means that the upside will definitely be a surprise.
I am now working on a list of Dow component stocks that look quite overdone, and may add a few more stocks to this list if I find anything new.
The Federal Reserve left interest rates unchanged. The FOMC Statement reads as follows:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1 percent.
The Committee continues to believe that an accommodative stance of monetary policy, coupled with robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence accumulated over the intermeeting period confirms that output is expanding briskly, and the labor market appears to be improving modestly. Increases in core consumer prices are muted and expected to remain low.
The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation. However, with inflation quite low and resource use slack, the Committee believes that policy accommodation can be maintained for a considerable period.
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan S. Bies; J. Alfred Broaddus, Jr.; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; and Robert T. Parry.
Now, I don't know about you, but if there was ever a case of trying to be two-faced, this must be it. On one hand, the FOMC had to leave the "policy accommodation can be maintained for a considerable period" statement in there to keep their promise. On the other hand, they hint that things are getting better by changing the tilt to "upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal".
We are not surprised by this stance. As discussed last week, I am sure this is their plan, to let the market do the tightening. Best to let supply and demand dictate anyway.
Real time forum log.
Click on the title above to expand this document.
BTM Chain Store Sales -2.5%
Econoday reports: A foot of snow on the Eastcoast spoiled the week's shopping results. The BTM-UBSW retail chain-store index fell 2.5 percent in the week ended December 6, its sharpest decline in three years. Customer traffic was sharply lower in the effected areas, leading to a marked pick up in online shopping. The report will raise fresh concern over the success of the holiday shopping season, a minus for stocks and a plus for bonds.
NOTE: The BTM-UBSW report will not cease publication after all, becoming instead the BTM-UBS report now affiliated with the International Council of Shopping Centers.
Redbook -1.0%
Econoday reports: The Redbook reported a 1.0 percent decline in the pace of sales at the nation's discount and department stores in the week ended December 6 compared to the month of November. The year-on-year pace in the week, thanks to a weak comparison, was a positive 3.2 percent but still down from a 4.4 percent pace in the prior week. Results were hurt by heavy snow on the Eastcoast.
Wholesale Inventories +0.5%
Econoday reports: Wholesale trade inventories rose 0.5 percent in October, up from a revised 0.3 percent rise in September (originally a 0.4 percent gain). The rise points to inventory restocking, consistent with stronger economic growth. Wholesale sales were up 2.0 percent, pushing down the inventory-to-sales ratio to a record low of 1.18 vs. 1.20 in September. The declining ratio suggests that wholesalers continue to get more out of proportionately decreasing levels of inventory. Wholesale auto inventories rose 2.7 percent in the month with sales up 0.5 percent. Wholesale petroleum inventories fell 0.9 percent with sales up 1.4 percent.
4-Week Treasury Bill Rate 0.895%
Econoday reports: The bid-to-cover was an extremely strong 3.05 vs. 2.30 last week, a reflection of the auction's lower size.
Federal Funds Rate Unchanged 1.00%
Econoday reports: To no one's surprise, the FOMC voted unanimously to leave the federal funds rate target unchanged at 1 percent. The big question of the day was whether the Fed would delete the phrase "for a considerable period" from the statement. As it turns out, they left it in! This may be negative for the dollar, although it may be viewed more benignly by stock and bond market investors.
There were some changes (since the last meeting) to the Fed's post-FOMC statement. They now indicated that the risk of falling inflation was almost equal to the risk of rising inflation. Until now, Fed officials had worried that the risk of disinflation far exceeded inflation acceleration. The upside and downside risk of the economy were deemed roughly equal. According to the statement, Fed officials believe that the labor market is improving modestly and economic growth is brisk.
Judging by the psychotic whiplash in the bond market as the statement was analyzed, WSJ.com summed it up just right:
The Fed maintained its plan to keep short-term interest rates at a 45-year low for a "considerable period." But policy makers said the risk of deflation has "diminished" and delivered an upbeat economic assessment, perhaps laying early groundwork to raise rates.