Wednesday, September 10, 2003
Issue Contents:
| 07:15 | Good Morning... |
| 07:23 | [$XAU, Monthly] Gold and Silver Sector |
| 08:03 | [Internals, Daily] NYSE |
| 08:09 | Paul's Intraday Watch List This is Paul's intraday and swing trade watch list for Wednesday. |
| 08:12 | [$SPX, Daily] S&P 500 Index |
| 08:22 | [SPU3, Multiple TF] S&P Futures |
| 08:27 | [$INDU, Daily] Dow Jones Industrial Index |
| 08:57 | [DJU3, Multiple TF] Dow Futures |
| 09:10 | [$NDX, Daily] NASDAQ 100 Index |
| 09:13 | [NQU3, Daily] NASDAQ 100 Index Futures |
| 09:17 | [$SOX, Daily] Semiconductor Index |
| 09:27 | [$BTK, Daily] Biotech Sector |
| 09:31 | [TYZ3, Daily] 10-Year Treasury Note Futures |
| 14:40 | [TYZ3, Daily] 10-Year Treasury Note Futures |
| 14:45 | [NQU3, Daily] NASDAQ 100 Index Futures |
| 14:49 | [$SPX, Daily] S&P 500 Index |
| 15:12 | [$SOX, Daily] Semiconductor Index |
Again, very light on the U.S. Economic Calendar today. The MBA refinancing data released this morning was interesting; seems like the little bounce in the bonds gave a little reprieve to those seeking to get their financial house order:
WASHINGTON, D.C. (September 10, 2003) – The Mortgage Bankers Association of America (MBA) today released its Weekly Mortgage Applications Survey for the week ending September 5. The Market Composite Index of mortgage loan applications – a measure of mortgage loan applications for purchases and refinancings – increased by 22.8 percent to 771.8 on a seasonally adjusted basis from 628.7 one week earlier. On an unadjusted basis, the Index decreased by 2.9 percent compared with last week and was down by 37.7 percent compared with the same week one year earlier.
The MBA seasonally adjusted Purchase Index increased by 3.2 percent to 408.8 from 396.1 the previous week. The seasonally adjusted Refinance Index increased by 45.5 percent to 2883.6 from 1981.5 one week earlier. Other seasonally adjusted index activity included the Conventional Index, which increased to 1112.3 from 879.8 the previous week. The Government Index decreased to 203.9 from 209.6 the previous week.
“With mortgage rates decreasing for the first time in over two months, consumers are taking advantage of a dip in interest rates,” said Doug Duncan, MBA’s senior vice president and chief economist. “The rise to a 55 percent share of applications for refinances from 46 percent the previous week shows consumer attention to possibly the final opportunity to capture a temporary rate drop in a rising rate environment. While the percentage increase in the indexed level of activity was large, this week's refinance index level was less than one third of the level experienced at the height of the boom in early June.”
The refinance share of mortgage activity increased to 55.0 percent of total applications, from 45.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 21.6 percent from 23.3 percent the previous week.
Of note is the small headline at WSJ.com, Mortgage Lenders Cut Jobs.
The cooling refinancing boom is claiming its first casualties: employees of the nation's big mortgage lenders.
Countrywide Financial Corp., the nation's largest independent mortgage lender, said it has shed 500 jobs since July, while online lender E*Trade Mortgage last week let go 163 telephone-service representatives.
While in both cases the cuts represent less than 5% of these companies' work forces, industry executives and analysts expect more severe job cuts to come. Rising interest rates already have slowed the refinancing boom that has sustained the industry, raising the prospect that mortgage providers will lose more than 150,000 employees from their payroll over the next six months, according to David Olson, managing director of Wholesale Access Mortgage Research & Consulting Inc. The Columbia, Md., firm works with the nation's 20 biggest mortgage lenders.
"The industry has been living off refis," Mr. Olson said. "And rising employment in the industry has been a direct function of that. With refis down greatly, we're expecting a major reduction in workers."
Indeed, Countrywide said daily applications for both purchase and refinancing fell by 29% in August to $1.8 billion, compared with $2.53 billion in July. Refinancing activity for Countrywide in August fell 26% to $28.40 billion from $38.49 billion in July. Industrywide, refinancing has fallen by 78% since May, according to a late-August Mortgage Bankers Association of America report.
![[graph]](http://online.wsj.com/public/resources/images/NA-AB057_MORTGAGECUTS09102003014810.gif)
Elsewhere in the world, it's "just another day in paradise":
- Israeli air strike kills two, while Hamas dude Mahmoud al-Zahar survives.
- Thirteen Israelis killed in bus stop, cafe blasts.
- One killed, 53 wounded in a car bomb in Irbil, Iraq, including six DOD personnel.
[$XAU, Monthly] Gold and Silver Sector
While I might be better known as a "day" trader of stock index futures, the fact is that I traded gold for the majority of my career, all the way down to the bottom.
Back when I was working in the brokerage house in Vancouver, the standard greeting when we arrived at the office was "how's gold today?" All that changed in 1996 after the Bre-X fiasco; gold went into eternal sleep, and I moved on. By 1999, the standard greeting was "how's Amazon today?".
It's interesting to see gold now, $100 off the low, and people are getting excited again. To be honest, I don't have any more interest in trading gold stocks "to the minute" anymore. I'd rather do the big picture thing, since it provided us with such a handsome opportunity to acquire a position over the last couple of years.
Again, at this point in the game, it must be yet another case of non-buyers remorse. By the time you get it, quite often it is close to a turning point. This demonstrates to us once again, that while trading off technicals is simple, psychologically is just not easy.
This is the monthly chart of the PHLX Gold and Silver Index vs. the London Afternoon Gold Fixing. I remember following this chart and noting the big test of bottom back in the fall of 2000, particularly the fact that while gold stocks went to a minor new low on a test, the price of gold did not. I thought this was the most curious divergence, because the conventional wisdom I had been handed down by the old-timers was that the stocks were supposed to lead the metal. This time, it didn't.
Six months after the test -- in April 2001 -- I remember calling my friends back at the office, informing them that it was time to load the boat for retirement accounts, for gold had apparently survived the big test, and was creeping up. I was told that it was a "no can do" since the clients didn't want to hear about it. I argued that the downside risk was so minimal for what might be THE low in the dreaded yellow metal, that my buddies had to call their clients and inform them. But no.
In my experience, clients are always like that. There are reasons why traders get the hunches that they do. It's because we sit here every single day. We can feel nuances, the changes in price in relation to sentiment. For me, when it's time to buy after a long downtrend, receiving the cold shoulder or even vehement disagreements from clients is a sure sign that it's the right time to go in.
Later that year, in December 2001, I was on the E*Trade radio shows and even wrote about it at the old website for FREE to inform people about the different ways to play the potential move in gold. But no.
By the time the clients phone me to ask "what do you have for investors", you know that they are suffering from a really bad case of non-buyers remorse, as if there is something I can do to turn back the clock by YEARS and get them long. Sorry, the market does not work this way. The tragedy that is most often seen is when investors come in after a multi-year move to buy a multi-year high, and because their intention is to open a new position in their portfolio for a long time, they often end up holding the bag. They sometimes get really, really lucky because it is a secular bull market, but that really didn't help a lot of investors in technology back in 2000, did it?
The fact is that investors, given their time horizon, have to buy low and sell high. Traders have the luxury of buying high and selling higher. We cannot mix the two.
We're now at the end of 2003. For those of us who bought low, the upside targets have all been reached. The question now before us is if this is really a head and shoulders bottom, and if so, where do investors get in for this move? On the "breakout" as they are now, or should they wait for a pullback?
Oh, why do people ask me such hard questions? It was really much, much easier to have bought it at the right time...
This is the daily chart of the market internals that we follow. Note that the number of 52-week new highs is making lower highs here, even though we don't have a corresponding rise in the new lows.
Yesterday, we had a small move up in the $VIX CBOE Market Volatility Index that was accompanied by the move up through the 30 line on the 5-day RSI. This should have triggered some sellers going short at the close if they were following some of the Connors VIX Reversal strategies.
Remember, this is a hit and run short -- an attempt to pick a spike high -- since for most of the major indices, it's NOT a test of top setup. Since the market did not cooperate with the attempts over the last few months, perhaps the early shorters have now given up, since they are scared of losing more money. If this is the case, then it might be ready to finally reverse?
This is Paul's intraday and swing trade watch list for Wednesday. He will review the setups for the Real-Time Trading Group at around 11AM Eastern.
BUY SCALPS:
- MSFT @ 28.72
- CIEN @ 7.34
- AAPL @ 22.68
SHORT SCALPS:
- ERICY @ 17.04
- BAC will look for entry intraday off the 10/15min charts
****
One thing I mentioned yesterday in the Real-Time Trading Group is the fact that for a "breakout", it sure seems to be congested and strained. But then again, when we are watching it to the minute, time slows down. Still, one would think that it would have more "poop", instead of having me wonder "where's the beef"?
This is the $SPX daily chart. Still above the blue line at $SPX 1015ish, so must assume that it's up until further notice.
[SPU3, Multiple TF] S&P Futures
Don't forget that rollover to the December contract is slated for this week.
I think what we have here is a sense that it's lacking something for a move up. The way the last four bars overlap and whipsaw -- one up, one down -- makes us feel hesitant. We don't want to buy even though we know it's "up" but since all attempts to hit and run on the short side did not produce great rewards, we are loathe to sell. Between these two feelings, the market has stalled.
For me, it's hard to get excited about buying, particularly when we did do it in February. And when it's like this after a multi-month run, I'm always thinking that the short side is easier to play. Now that we are scared of shorting, this might be finally the time for a top on the daily chart. Let's just say that we will have a short bias intraday, while swing trade alerts go off on break of yesterday's low. Downside target remains the SP 1015 area.
Intraday, there is a big triangular congestion area. Surprise would be a downside breakout.
[$INDU, Daily] Dow Jones Industrial Index
Last week I put in the outline of what could be a rising wedge on the $INDU daily chart, which would be a reversal pattern in this timeframe.
If we take a look at the DIA (Dow Diamonds) daily chart and inspect the volume, we do see contracting volume that corresponds with the rising wedge diagnosis. Note the volume spike last Friday when the $INDU swooned, and I think this indicates lots of nervousness out there.
Again, these patterns are not easy to trade on a swing basis since they are often intraday trades or one-day hit and run scalps. Suffice to say that if the $INDU comes back under the August 22 high of 9500ish, then we might see some action on the downside targeting the lower edge of the pattern, which is just under the 20-day EMA at $INDU 9417.
[DJU3, Multiple TF] Dow Futures
We can add the fact that there might be a tiny triangle forming on the daily chart here too...
Intraday, you can see it well-formed on the 45M chart.
I think the surprise move would be up to the upper edge, down to the lower edge, followed by a downside breakout.
[$NDX, Daily] NASDAQ 100 Index
This is the $NDX daily chart.
We have a two-day Japanese candlestick pattern called Harami. It's basically a pause. So long as the $NDX is trading above the August 22 high we have to assume it's up until further notice, notwithstanding our comments about the Dow Industrials and the S&P 500 being "laboured".
What we have to watch out for now, given that this is a multi-month high is some sort of surprise move. Yesterday's narrow range day will be use by some to try breakout strategies, meaning a break of yesterday's high will have some traders buying with the immediate target of testing Monday's high. A break of yesterday's low will have some traders selling with the immediate target of testing Friday's low. Or, it does the usual, which is go to one end, fake and then go the other way.
I just don't have a lot of say here, since any swing trades have to be taken one day at a time at this point. And the suprise will be on the downside.
[NQU3, Daily] NASDAQ 100 Index Futures
Seems like the charts for the futures look much more negative than the indices, mainly due to the nasty two-day candle combinations. On both the SP and ND/NQ, the pattern is not quite a perfect Dark Cloud Cover, but it's there. And again, reversal patterns need price confirmation in candlestick theory.
If we are trading intraday, we will be looking for traders to get excited if yesterday's low can be decisively broken. Nearby support is in the NQ 1354 area, with the August 22 high of 1343 below that.
[$SOX, Daily] Semiconductor Index
Harami pattern has formed on the daily chart, denoting a pause.
Having survived last week's test of top, we will need to see it continue to the upside to prove that it's really a breakout. Surprise is a sudden reversal after stalling on the harami pattern, with a breach yesterday's low triggering the alarm. Support below is the $SOX 458 area. Trading back under that will bring out the sellers.
$BTK 490 is a big resistance area.
We will be watching closely here.
[TYZ3, Daily] 10-Year Treasury Note Futures
So, after making the "surprise" upside move and hitting the upper edge of the trading range on the daily chart, sellers showed up.
Note that the 111 area is also where they 50-day MA is located. While the Notes are officially in a chop zone, the surprise will be that yesterday was a single down day and it goes up to test the high end of the traing range again, and maybe goose it up a bit? It always gets harder and harder to trade as the price action continues inside a trading range...
[TYZ3, Daily] 10-Year Treasury Note Futures
Surprise upside setup discussed this morning hits target.
[NQU3, Daily] NASDAQ 100 Index Futures
NQU3 hits the August 22 high downside target as discussed this morning.
Ah, that old psych trick works again as the $SPX hits the first downside target.
This morning, we wrote the following for our Bottom Line Analysis subscribers:
Remember, this is a hit and run short -- an attempt to pick a spike high -- since for most of the major indices, it's NOT a test of top setup. Since the market did not cooperate with the attempts over the last few months, perhaps the early shorters have now given up, since they are scared of losing more money. If this is the case, then it might be ready to finally reverse?
We wrote this for our Bottom Line Strategy subscribers:
I think what we have here is a sense that it's lacking something for a move up. The way the last four bars overlap and whipsaw -- one up, one down -- makes us feel hesitant. We don't want to buy even though we know it's "up" but since all attempts to hit and run on the short side did not produce great rewards, we are loathe to sell. Between these two feelings, the market has stalled.
For me, it's hard to get excited about buying, particularly when we did do it in February. And when it's like this after a multi-month run, I'm always thinking that the short side is easier to play. Now that we are scared of shorting, this might be finally the time for a top on the daily chart. Let's just say that we will have a short bias intraday, while swing trade alerts go off on break of yesterday's low. Downside target remains the SP 1015 area.
I know that many traders spent a lot of time on the inner game -- their own psychology -- when in fact they really ought to be paying more attention to the outer game. Trading is like chess. Your goal is to anticipate the probable next move of your opponent, based on a small number of possible moves, given the state of the pieces on the board. That's why it's necessary to listen to the market. Quietly.
[$SOX, Daily] Semiconductor Index
This morning, we said to subscribers of The Bottom Line Analysis that:
Having survived last week's test of top, we will need to see it continue to the upside to prove that it's really a breakout. Surprise is a sudden reversal after stalling on the harami pattern, with a breach yesterday's low triggering the alarm. Support below is the $SOX 458 area. Trading back under that will bring out the sellers.
There you go. Mission accomplished.