Thursday, January 15, 2004
Issue Contents:
| 08:40 | Good Morning The day ahead. |
| 08:59 | Daily Swing Trade Today's stock setups. |
| 09:19 | Daily Swing Trade YHOO analysis. |
| 13:16 | Trading Retracements Finding the Holy Grail. |
| 15:18 | Lost Luster D.Y.M. |
| 15:44 | Gold vs. Indices Another thought. |
| 15:58 | Daily Swing Trade Intraday update. |
| 16:16 | Active Trader Transcript Real time forum log. |
This morning's price action really started last night after the close with the earnings reports from INTC, YHOO, and AAPL:
(WSJ.com) - Intel, Yahoo, and Apple all reported a surge in quarterly earnings, a sign that a consumer-led recovery is accelerating in many technology sectors. Samsung Electronics said fourth-quarter net rose 24%, driven by sales of products that are more sophisticated and profitable.
And we basically got what we expected, which is the "sell on news" effect.
This is a 5-minute chart of the NASDAQ futures after the earnings releases. Traders then focused on IBM's earnings announcement to save the day, because it was moved up from its scheduled January 20 release:
(WSJ.com) - IBM's net jumped in the fourth quarter, helped by the benefits of a weaker U.S. dollar and signs of life in spending by corporations on technology.
On the U.S. economic calendar today, we've already seen the NY Empire State Index, retail sales, and the consumer price index come and go. We still have a number of events on deck today:
- 11:00AM Kansas City Federal Reserve Bank President Thomas Hoenig to appear on panel discussion in Broomfield, Colorado.
- 11:30AM San Francisco Federal Reserve Bank President Robert Parry delivers keynote speech on U.S economic outlook at the Casden Real Estate Economics Conference in Los Angeles.
- 12:00NOON Philadelphia Fed Survey
- 2:00PM Treasury Budget
- 4:30PM Money Supply
The only high profile earnings release due after the market today is from SUNW.
We continue the saga of the short position in DIA today. As we go to press, with IBM up on earnings, the DJ futures are up, and DIA last traded at 106.07.
The daily chart of the Dow Industrials (and DIA) is now officially in an M Test of Top position, ready to test last Thursday's swing high. I had a chance to get out on the pullback to the first downside target but did not, and so now I shall have to endure the test of top.
The only thing we know about last Thursday's swing high is that it is a place where sellers showed up. The reason it is now called a test is because we will find out if they are still there. There are a number of trade setups that deal with tests, and I will write about them later today. For now, I must hold still because we do not know yet if it will pass or fail here.
Here's the 15-minute chart of the DJ futures. We can see that the ADX reading is in extreme territory for this symbol and timeframe as the Dow Industrials head into the big test. I'll be watching this for clues and will update later today.
In our next post, we will review SUNW, YHOO, AAPL, IBM and INTC.
The first chart we have up on deck is YHOO.
On the daily timeframe, this is a simple case. It's a pullback in an uptrend. With ADX > 30, we have to expect some buyers to attempt the StreetSmarts Holy Grail buy setup, which is to look for a pullback to the 20-day EMA below to set it up. For traders who are looking to make one to two-day swing trades, it might be worthwhile to watch if it sets up, and we'll describe shortly.
The weekly bar chart is showing us a divergence between the ADX and the price after registering an extreme ADX reading for this symbol and timeframe. While this is not a sell setup per se, a look at the candlestick chart tells us more.
Yes, potentially this is a spike top of significance, and don't forget it hit a nice round number such as $50 already, from a low of $10 in October 2002. IF this is the Elliott Wave 5 climax top, THEN it would not be surprising to see a spike form here. Extreme ADX reversals usually don't have the sort of politeness as ordinary tests, and typically form spike reversals that materialize "without warning".
Remember, investors get hung with full positions at tops because tops do not look like tops. They always look like they have more to go on the upside because fundamentals are gangbusters. And then they get impaled.
by Teresa Lo
No matter what trading books say, all trade setups can be classified into the following four groups:
- Retracement: A pullback in an uptrend to buy; a bounce in a downtrend to sell. Trend should be confirmed by rising ADX values.
- Test: In an uptrend, it is move back to the last swing high (a test of top) where sellers showed up before; in a downtrend, it is a move back to the last swing low (a test of bottom) where buyers showed up before. A retracement pattern MUST precede the test.
- Breakout: A move out after a prolonged period of being stuck in a trading range or a big triangle, with ADX dropping to very low figures such as the 10-15 area. A breakout is NOT a new high made on a test of top or a new low made on a test of bottom.
- Spikes: The Extreme ADX Reversal, after a parabolic directional move.
In 1996, Larry Connors and Linda Rachske wrote a book called StreetSmarts. It contained a retracement strategy that basically combines the classic move back to a moving average, and qualified the strength of the trend by using ADX.
I found an interview in the AIQ Opening Bell with Linda from August 1997 where she described the setup in her own words: The Holy Grail retracement setup.
Over the last week, I wrote about gold at length, including the big picture price projections for the Dreaded Yellow Metal.
This was another good example of an Extreme ADX Reversal. Notice the lower high was made on the test, a typical pattern.
And since trading is like Hollywood, where we're only as good as our last trade, I'll take a quick bow for this one before going back to deal with my other trades. ;o)
Last week, I wrote about the strange divergence between the metal itself vs. the indices.
After I wrote the piece, I realized that perhaps one reason why the metal went straight up could be that it was short-covering from institutions and producers who were short the metal for various reasons, namely buying back metal sold forward or unwinding the famous contango trade(?). Here's an interesting article from savegold.com that has good background information. It reads almost like the famous "The Death of Equities" issue of Business Week back in 1982.
On the technical side, I realized that I had omitted marking out the wedge pattern, which was in fact perhaps an Elliott Wave 4 Triangle.
I'm going to hold my puts. Comments will be posted overnight.
Real time forum log.
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