Thursday, July 24, 2003
Issue Contents:
Mike is going to be sorry that we effectively launched a newsletter that is a blog.
You see, late at night, I am often trolling the Internet reading strange articles. Tonight, it was a very long one called The Neanderthal Theory, which "aims at giving a credible explanation for why up to 10% in some parts of the world are classified by psychiatry as disordered." Near the bottom, there is a discussion about differences in brain function: "The most important aspect is brain-liberalization. Left-handedness and right-hemisphere dominance is clearly linked to both autism and dyslexia. The dominance issue results in profound differences in brain-function."
I categorize myself as genetically left-handed, as opposed to the accidental, "ambidextrous left-hander" that I usually meet. My father was left-handed. He produced 50% left-handed children in two families. My left-handed half-sister and I were found to share the same side as my father when we were HLA tested. In university, I was recruited for perception tests for a theory that only a small number of left-handers are actually right-brained, and was confirmed to be one of the wierd ones.
Imagine my thoughts tonight when I read "The autistic function: Direct processing of information in the right hemisphere, without involving the left hemisphere. Examples range from simple movements to automated car-driving. The advantage with this method lies in it's speed, and the ability to multitask with other activities. It's limited to right hemisphere functions, and as soon at it needs access to the left hemisphere, it can no longer execute unconscious."
OK, the cat's out of the bag. Now you know why I can just push the buttons and make money trading. I must be Rain Man. :o)
These are Paul's intraday picks for Thursday. Prices are alert triggers.
- BUY: CAT@65.02;
- SELL SHORT: SFA@29.69, AMAT@18.72, SNDK@52.23, INTU@40.48;
- WATCH: MCHP for some continuation.
He will go through the list in detail in the Real-Time Trading Group.
Yep, the yellow metal is at it again: "TOKYO, July 24 (Reuters) - Gold topped $360 an ounce for the first time in almost five weeks in Asia on Thursday as the dollar licked its wounds after a U.S. Federal Reserve governor said the central bank was prepared to cut rates to zero if necessary." Reuters story: Gold tops $360 in Asia after Fed 'zero rates' talk.
Now that the bulk of corporate earnings are over, we're back to deflation watch leading up to the FOMC meeting scheduled for August 12. The market is just like that song by the Spice Girls: "We're goin' 'round in circles, tell me will this deja vu never end?" Don't forget that later this week, the autorefresh feature will be implemented; until then, please click the reload button in your browser to see new posts.
[$DXC, Daily Chart] Dollar Index
As discussed yesterday in the Real-Time Trading Group, it's not a surprise to see the U.S. Dollar stalling here, since the 97 area is where support was once broken, and it's now resistance overhead. The trick here now is to see if the 20-day EMA just under 96 will hold or not, or if this is a big rising wedge on the way back down.
[@US, Daily] 30-Year Treasury Bond Futures
Let's take a big step back and look at this daily chart from a big picture perspective. It's now under the 200-day moving average, something that CNBC would be just reporting every five minutes if this were the Dow Industrials. Quite often, a dramatic move like the meltdown over the past couple of months will slow down as it hits a major point such as this, so what we'll do is to put a little neckline here for future use, for the big picture.
[@DJ, Daily] Dow Industrials Index Futures
Sorry if this is taking a few days for me to get up to speed. Between trading, the Real-Time Group and the newsletter, the workflow has changed a lot, and I'm getting used to the new way of doing things here.
Obviously everyone on the planet can see this triangle on the daily chart of the DJ. Right now, it's testing the upper edge of the pattern, so while it may be the beginning of a breakout, one must be careful, since it might be 1. the congestion area is simply getting larger, and breakout players will be trapped by a false move, and 2. the "expected" upward resolution to what most would consider a continuation pattern quite often fails when you see it take place after a long, long uptrend. Justin Mamis once explained in his newsletter that the reason why people, including professional money managers, get trapped at the top is because tops don't look like tops!
[@SP, Daily] S&P 500 Index Futures
The pattern here on the daily SP chart is instantly recognized by 100% of market participants as the classic ascending triangle. The name implies upward resolution, but again, once we know the expectation of the crowd, we have to be extra vigilant about reminding ourselves that should the expected fail to materialize, tons of people will be trapped on the wrong side, and that's when reversals take on that crash-bang quality.
I've looked through the daily charts of all the indices and futures that we cover, and there aren't any setups here. I'm going to proceed to take a look at the major stocks that are in play right now. Don't forget our Lists 1 to 9 are now at ChartScreener.com Bob and Brian are working on making this a really useful resource for all of us. I'll be adding more lists over the next few weeks.
[AMAT, Daily] Applied Materials
AMAT is in an upswing in this time frame. While some might call this a breakout, it's really a test of of the July 15 swing high, and a new 20-day high. IF it should fail to continue upward, THEN a number of sell setups may be triggered. Look for sellers to show up should AMAT close under the July 15 high of 19.26 today. Also, if today's low is broken in tomorrow's trading, sellers will show up as well. We'll see if it can pass the test shortly and continue up.
Real-Time Trading Group Transcript
[AMAT, Daily] Applied Materials Update
This morning, we used AMAT as an example of a what we call an M Test of Top in the Trendvue Technical Trader's Manual and discussed a couple of methods used to enter a potential reversal pattern if the upside breakout failed. The most aggressive swing traders would now be short AMAT since it closed under the July 15 high of 19.26, on the operating assumption that a failed breakout has taken place. There are two downside targets. The first is the 20-day EMA below in the 17.76 area. The second is the July 18 swing low at 17.62.
We have marked the area between July 15 swing high and the July 18 swing low. This is now the trading range -- we call it the potential change of trend zone -- meaning that so long as AMAT trades within the area, it's officially sideways, congesting. Many market participants only think of up and down, and end up trading chop zones and lose money. So long as it's inside the trading range range, we are neutral and conduct only hit and run trading tactics since it is trading in between a well-defined support and resistance area.
Given the failure to make a clean upside breakout today on the first try, we now look for signs of a true reversal, things like a big down day if today's low is broken in tomorrow's trading, taking it one day at a time. Swing traders who are now short will demand that they get confirmation of reversal quickly, and it should arrive at the downside targets within two or three bars (two to three days since the setup is on the daily chart) if it is the real thing. Stop losses can be set in two locations. The aggressive stop loss will be placed just above the July 15 high. An alternate area would be just under today's high of 19.51. A third alternative would be to risk no more than 50% of the projected gain at the first downside target.
For you Japanese candlestick fans, this is an excellent example of a two-day (July 23, July 24) formation called the Dark Cloud Cover pattern. It's similar to a reversal day in bar charts. The fact that this happened on a test of the July 15 swing high, a place where sellers previously appeared, confirms that there is resistance in the 19 area. What we don't know is how strong the selling will be, and that's why in Japanese candlestick theory, so much emphasis is placed on the third candle to confirm, and that is precisely why swing traders who are now short will be looking for immediate downside follow through tomorrow.
These are Paul's intraday picks for Friday. Prices are alert triggers.
- BUY: CAT@65.01;
- SELL SHORT: AMAT@18.79, SFA@30.03, BRCM@22.74, CHKP@16.94, IGT@26.22, SNDK@54.69, MER@53.34.
He will go through the list in detail in the Real-Time Trading Group.
Very light on the U.S. economic calendar. For tomorrow, we have:
- 8:30 a.m. Durable Goods Orders for June. Consensus: +1.0%. Previous: -0.4%.
- 10 a.m. New Home Sales for June. Consensus: -2.8%. Previous: +12.5%.
- 10 a.m. Existing Home Sales for June. Consensus: +1.4%. Previous: +1.2%.
Tonight we'll doing some homework on market internals that will be posted early in the morning. Have a good evening and we'll see you on the flip side!