Tuesday, January 20, 2004
Issue Contents:
| 03:20 | U.S. Economic Calendar The week ahead. |
| 07:43 | Good Morning Headlines and reaction. |
| 08:49 | Daily Swing Trade Content change. |
| 08:56 | Daily Swing Trade Managing the trade. |
| 09:17 | Watchlist of Stocks Download available. |
| 15:40 | Dow Industrials Technical update. |
| 15:51 | NASDAQ 100 Index Technical Update. |
| 16:16 | Active Trader Transcript Real time forum log. |
| 16:58 | S&P 500 Index Technical update. |
This week and next week are largely focused on earnings.
Monday, January 19
U.S. market is closed in observance of Martin Luther King Day.
Tuesday, January 20
President Bush will give the State of the Union address before Congress tonight at 9PM Eastern.
Earnings Highlights include C, SANM, FISV, MMM, JNJ, UIS, UTX, WFC, USB, GM, ONE and high profile conference calls with TYC, UIS, JNJ, WFC, MMM, GM, UTX, C, USB, ONE and SANM.
- 9:00AM Bank of Canada Interest Rate Announcement
- 11:00AM 4-Week Treasury Bill Announcement
- 1:00PM 3-Month Treasury Bill Auction
- 1:00PM 6-Month Treasury Bill Auction
Wednesday, January 21
Earnings Highlights include SBUX, SYMC, ATI, CTXS, EBAY, XLNX, FAST, F, SNDK, SEBL and high profile conference calls with CDWC, MER, GD, JPM, ATI, SBUX, CTXS, SEBL, XLNX, EBAY, SYMC, SNDK and SEBL.
- 7:00AM MBA Purchase Applications
- 7:45AM ICSC-UBS Store Sales
- 8:30AM Housing Starts
- 8:55AM Redbook
- 1:00PM 4-Week Treasury Bill Auction
Thursday, January 22
Earnings Highlights include AMGN, BCC, CDWC, CHKP, CPWR, MSFT, MER, MCHP, JPM, GD, ERTS, EK and high profile conference calls with F, ERTS, CHKP, C, EK, BCC, PFE, AA, AMGN, CPWR, and MSFT.
- 8:30AM Jobless Claims
- 10:00AM Leading Indicators
- 11:00AM 3-Month Treasury Bill Announcement
- 11:00AM 6-Month Treasury Bill Announcement
- 4:30PM Money Supply
Friday, January 23
Earnings Highlights include SLB, XRAY, WY, JDSU, GNTX, CAT, and high profile conference calls with SLB, and WY.
- No major economic data releases scheduled.
Well, it's hard to imagine headlines getting any better than these. Even the Monkeys are getting into it:
BEIJING (Reuters) - The Year of the Monkey, Chinese soothsayers predict, will bring a stock market boom, a freer yuan currency -- and a hefty dose of political chaos.
NEW YORK (Reuters) - Citigroup, the world's largest financial services company, on Tuesday said fourth-quarter profit nearly doubled, driven by consumer and investment banking. Citigroup shares closed at $49.50 on the New York Stock Exchange on Friday.
CHICAGO (Reuters) - Diversified manufacturer 3M Co.
said on Tuesday its fourth-quarter earnings rose as the company boosted productivity and sales.
The bottom line here is that market participants are wildly bullish now, proped up by "confirmation" by fundamentals. This is the point where the I Can't Stand It Anymore buyers, the ones who have watched the market go up for a whole year, join the stampeding herd.
This is the part where they all dive in with market buy orders. This is -- most importantly -- the part where the professionals all looks stupid. Why? Because it's all about risk and reward. If we contrast the potential upside and reigning market sentiment in the Aversion Phase back in February 2003 when we originally issued our big buy signal against what we are seeing now, the only thing we know is that the market has got to be as good as it gets with zero room for error stage, most likely the Enthusiasm Phase. We've seen the Justin Mamis sentiment cycle unfold like clockwork.
With technicals reaching extremes, the most professional participants are basically standing really close to the exit door, if not leaving the party altogether, because the proverbial lampshades are being worn on investor's heads. For example, this a snippet of what Larry Connors wrote last Friday:
Here is One Time You Should Not Be Buying Stocks!
Over the past few months, we have looked at the times that you should potentially be entering the markets and when you should be avoiding the markets. We saw that on a short-term basis it was better to be buying 10-day lows on the S&P 500, instead of 10-day highs. We saw that waiting for the market to drop 3 days in a row was superior to buying after it rose 3 days in a row. We also saw that there was a bigger edge buying when the S&P 500 closed in the bottom 1% of its daily range versus buying when it closed strongly in the top 1% of its range. Most of what we saw was counterintuitive, the complete opposite of what is preached. And more importantly, instead of hearsay and opinion, all this information was statistically backed and based upon the market's performance over the past 15-20 years.
This week, let's go further. Let's look at when not to be buying. As important as it is to be a buyer when markets are most advantageous, it's just as important not to be buying when the market has no edge. As we just mentioned, there has been little to no short-term edge buying 10-day highs, buying after the market has risen 3 days in a row, and buying when the market closes strongly. And, another time to not to be buying stocks is when the VIX (CBOE:^VIX - News) (CBOE Volatility Index) is trading 5% or more under its 10-period simple moving average. Why? Because had you bought the S&P 500 every time the VIX was 5% or more below its 10-day SMA, and exited a week later over the past 18 years, you would not have made money! The market has risen 431.59% during this time and yet none of this gain (net) has occurred when the VIX was 5% below its 10 day-sma. Unreal, isn't it?
When everyone is jumping up and down. Lots of excitement out there, lots of warm fuzzy feelings about how the market looks. It usually occurs at the same time that the market is making new 10-day highs and/or is closing at the top of its daily range (and further confirming some of the things that you've learned over the past few months). It's happening after all the good news is already reflected in prices. Yes, things look great. But, as we have learned, prices already reflect this. Buying into these periods of time has led to "dead money". There's no edge whatsoever.
Of course, as a former broker, I know that the clients don't want to hear this sort of stuff at this point, since their big fear now is missing out. In fact, at this point, most investors fire their investment advisors and click the buy button for themselves, online.
Effective today, we will split up the Daily Swing Trade into two parts.
Part one will uploaded after the market close, to update of any swing trades that Mike and I are personally interested in or managing. The second part will be uploaded throughout the day, and will provide detailed analysis of high-volume stocks that are in play, i.e. top gainers/losers, 52-week highs, and stocks that might have surprises lurking, i.e. stocks about to announce earnings.
We think this will serve our subscribers needs much better.
Well, here we are, right on the test of top on the daily chart of the Dow Industrials and I am still short.
At this point, it's either pass of fail, and with more than half of the S&P 500 stocks about to announce earnings over the next two weeks, investors have gone wild.
Our Plan: We will hold our FEB 106 PUTS *if* the Dow Industrials close below the January 8 swing high of 10592.98. If it does not close below this number, I will sell the puts in the last half-hour of trading today.
I will provide analysis of how to set up a new swing trade on an M Test of Top later.
Subsequent to the last Subscriber Mailbag question concerning watchlists of stocks, I received a further question from the same subscriber:
Yes, I have one more question re: watchlist - your article on the website was really great because I also wanted to know how to find good stocks in general. But I would also like to know at how many / which stocks you personally look at.
I have had a huge database of stocks in the past but want to cut it down a bit because it is hard to concentrate when looking through such a huge number of stocks to find a good pattern. Do you think it is better to use a large database and narrow it down with a screener or to maintain a smaller stock universum you can look at every night?
I made one for our own use, by combining the lists of the Dow 30, the NASDAQ 100 and the S&P 100. If you also look the top percentage gainers and losers and 52-week highs and lows ranked by VOLUME (available almost anywhere on the net free), you will have an excellent list to scroll through for ideas. My personal cutoff is 2 million shares volume.
[DOWNLOAD] text file: Right click and select "Save Target As..."
You already know that the market has gone bizerk, so let's take a quick look at what the charts are telling us.
The first one is the daily chart of the Dow Jones Industrial Average. It's in a classic Test of Top formation of the January 8 swing high, which was in itself, an Extreme ADX Reversal setup. This is also the StreetSmarts Turtle Soup setup where the most aggressive traders will now be short, since it is going to close below the January 8 swing high. Their stop loss will be placed just above today's high.
Please note that this chart was captured with about a half-hour to go, but the bottom line here is that the $NDX is approaching an extreme ADX reading for this symbol and timeframe. If we look at the insane speculation in the little "pig dogs" (as we used to call them in Vancouver) such as JDSU, LU, etc., it would not be a surprise to see it form a spike top of some type.
What we have here is called a Hangman in Japanese Candlestick terminology. I guess the name itself tells us a thing or two about it. In any event, the observation must be confirmed by a down day tomorrow; the bigger the move down, the better it would be.
Of course, we have so many wildcards in terms of earnings that it is like a crapshoot. The only thing we know is that they are expecting great things to support these prices, so if there is a negative surprise, there is almost zero room for error. And any upside surprise would have to literally blow the doors off analysts estimates in order to impress. Now that is a tough crowd.
Nobody said trading was easy, did they?
Real time forum log.
Click on the title above to expand this document.
This is the daily chart of the S&P 500 Index. The two-day candlestick pattern is the harami, and there is an Extreme ADX Divergence trade set up here for tomorrow. Will do the case study overnight.