Wednesday, November 10, 2004
Issue Contents:
| 09:12 | The Day Ahead Economic releases |
| 09:42 | Swing Trade Setups Featured charts for Wednesday November 10th. |
| 12:19 | Focus on: Currency Dive in to currencies. |
| 13:21 | Tools of the Trade: ETFs A look at Exchange Traded Funds |
| 15:30 | FOMC Raises Rate As expected. Now what? |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 20:52 | Swing Scanner Results Wednesday November 10th closing data. |
| 20:59 | Market Statistics For Wednesday November 10th. |
Good morning on this the 315th day of 2004. Pre-open stock index futures are trading marginally higher but still well within the tight range of the past two days. Crude oil is trading marginally weaker ahead of today’s weekly petroleum report. The real news of the day, even though its outcome seems a certainty, is the rate announcement from the Federal Reserve at 2:15 pm, and, more importantly, what wording accompanies the actual decision.
Despite European policy makers trying to talk down the Euro, the US Dollar Index is trading at a new multi-year low after a minor bounce yesterday.
Subscriber note: My office has been down with an internet outage and is just now back on line. Swing trade setups for both long and short ideas – since until 2:15 we really don’t have a firm idea of how the market will react to the news “everyone” seems to expect – will be posted as soon as is possible.
US Market Calendar
- 7:00 am: MBA Purchase Applications
- 8:30 am: Import and Export Prices
- 8:30 am: International Trade
- 8:30 am: Jobless Claims
- 9:00 am: FOMC Meeting Begins
- 10:30 am: EIA Weekly Petroleum Status Report
- 2:15 pm: FOMC Announcement
Canadian Market Calendar
- 8:30 am: Merchandise Trade Balance – September
- 8:30 am: New Housing Price Index – September
Earnings and the Federal Reserve
For earnings highlights, please see today's WSJ Earnings Calendar.
For a list of upcoming speeches, congressional testimony, Federal Open Market Committee material, and statistical releases, please visit the What's Next page of The Federal Reserve Board website. Recently released Federal Reserve Board material, including market moving FOMC decisions and speeches by members, will be found on their What's New page.
Featured setups from Tuesday November 9 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
Immediately ahead of a FOMC announcement, I generally do very little trading both in Futures and with new stock positions. I may enter some “out of the way” names from today’s picks, but in general I am hoping to avoid taking action until after the announcement comes out.
In the hours leading up to the 2:15 announcement we will discuss a long and short strategy to quickly get positioned in either direction, and what steps need to be taken in order to protect ourselves from an intraday or one-day “fake and reverse” move – something the market often does the day after a FOMC meeting.
Many chart setups look the same these days – a push up followed by a few days of fairly narrow range retracement. Its entirely possible the market as a whole has paused here and that many of these names will continue to push up.
New entries today should generally be done by those able to monitor positions and adjust protective stops during the day. Be wary of a minor poke above the trigger point and a reversal – ideally wait for the trigger / alert to go off, and buy after the first retracement on a bounce, provided price does not sink too far back into the trigger bar.
Long Setups
General common strategy: Unless noted otherwise, buy stop just above the “high” value, with an initial protective stop at the low value of the bar, not below the bar.
Retracement or Pause in Up Swing / Up Trend
HLT – typical of many stocks here as noted. Buy stop / alert 21.18.
AL – Alcan – minor pull back near a test of top. Note the difference between this and the TSX version of same following:
AL:C – shows effect of recent currency changes.
BJ has been a long pick recently – here’s another place to locate a long – buy stop / alert 30.43.
WTC:C – a potential “running triangle” here – a bullish continuation pattern. Buy stop / alert 13.41. Tight stops until it clears the 4 day high.
Test of Top – Continuation
DLTR passed a test of top recently and has been consolidating in a triangle since. Aggressive traders can attempt to catch a break out here 29.21 alert – tight stops.
SWIR (SW:C) has a test of top immediately overhead and a pause here on which to try a speculative long. Buy stop / alert 19.15 (22.85 CAD)
Short Setups
General common strategy: Unless noted otherwise, place a sell alert at or just below the low of the setup bar, and look for the first failed intraday bounce after the low has been broken. What we are looking for is price to push down, bounce a little, and fail again – this is where we want to get short.
Note: We’ll discuss using ETF’s to get short exposure in the hours before the FOMC announcement. Tune into TrendVue Trader Talk
Special Situations
BRCM – long – note the overhead resistance not far away. Setup noted as I’ve had questions from clients recently about setting a new position in this name. Sometimes a sub-optimal chart is all we have to work with if trying to get long a name for other – fundamental – reasons. Buy stop / alert 28.43 – move to a break even stop at the earliest possible opportunity.
YHOO – short – if the market does break down YHOO may provide a day-trading vehicle for a quick short – initial target is the trendline below.
Currency traders are currently on “yellow” alert – open to a potential change in trend here on the Euro vs US Dollar as it is testing an important top. Movement in the Yen today is also significant. Lets dive in…
A very large range outside bar has taken out stops above the historic highs so now we have a situation where we should pay close attention to where the Euro trades as it will be influenced more by fundamental, and political news, than short term technical trade.
We know from the weekly EURUSD chart that the test of the all time highs is on-going right here. These are always exciting and potentially profitable moments in any markets.
Given the fundamental data, the short term would suggest that any minor pull back in the EURUSD should be a spring board for one more attempt at pushing higher. Since the outside bar cleared all nearby stops, a move directly up here will have to be taken at face value until proven otherwise.
GPBUSD is still within range of a push higher at the trendline.
In fact for currency traders, this big down bar provides an opportunity to go long GBPUSD just above today’s high – price should not go there any time soon if the USD decline has been arrested today.
USDCAD – (Canada is the US’s top trading partner by a big margin) on day 2 of the bounce. Significant resistance runs from here to 1.225 so we would expect sellers to at least attempt to push price down eventually.
The Big Kahuna
Of the top US trading partners, Japan’s currency has moved the most today – roughly a 1.4% range in total today.
Yen Falls Versus Dollar, Euro on Concern Japan to Sell Currency—Nov. 10 (Bloomberg)—The yen fell by the most against the dollar in almost six months on concern Japan will sell its currency to protect exports and economic growth. Demand for the Japanese yen waned as it approached 105.50 per dollar, a level traders including Scott Schultz at Brown Brothers Harriman & Co. said might be near the Bank of Japan’s threshold for yen sales. Japanese policy makers ``are ready to take appropriate action’’ if moves in the currency markets counter the country’s economic fundamentals, Finance Minister Sadakazu Tanigaki said Nov. 2. More >
Hmnn… seems like a bit of a delayed reaction, doesn’t it? Yet we shouldn’t take everything at face value. Look what happened last time Japan made a big currency policy decision:
When Japan announced it would stop supporting the US Dollar earlier this year, the US Dollar actually rose – presumably because international currency traders felt this was a strong fundamental signal suggesting the US Dollar had hit a bottom. In this case, the desired effect may not be achieved.
by Mike Watkins
Exchange Traded Funds (ETFs) are incredibly useful tools for investors and swing traders alike. The three most well known directly track the common market indexes: QQQ (Nasdaq 100), DIA (Dow Jones 30) and SPY (S&P 500).
Beyond the ordinary are a wide range of ETF products available in the US and Canada, available to suit either the style (big, medium, small cap etc) or sector (industrials, technology, health care, etc) oriented investor.
For the medium and longer term investor, its well worth looking at the relative performance of the various funds or underlying market indexes, for performance varies greatly. Here are some examples brought forward in this morning’s TrendVue Trader Talk discussion:
| 12:33:12 | Mike: NYA (NYSE Composite) index is pushing a little higher here than yesterday.  |
|
| 12:33:30 | Mike: If we were not waiting to see market reaction this would be a chart you try to get long on. | |
| 12:35:10 | Mike: One of the possible proxies for NYA although broader than just the NYSE is the etf "VTI"  |
|
| 12:35:40 | Mike: Which is the Vanguard "Total Stock Market" etf. | |
| 12:36:46 | Mike: IYY (DJ Total market) and IYY (Russell 3000) are similar. VTI trades more volume, on average. | |
| 12:46:35 | Mike: Here's a percent change look at VTI (total) SPY (big cap) MDY (mid cap) IWM (small cap) and QQQ (tech) ETFs, measured from the recent lows Oct 25th.  |
|
| 12:47:31 | Mike: And then from the August lows:  |
|
| 12:48:19 | Mike: As is typical, small cap and QQQ recover most quickly from significant lows, even if they were beaten up more getting there (which is usually the case in fact) | |
| 12:49:25 | Mike: In Canada there is no easy to access small cap ETF but there is the XMD:C S&P TSX Midcap ETF. It performs well, but trades sparsely, so its something to whip out only at major turns. | |
| 12:49:47 | Mike: NT is also not in that index, which is another reason to like it if you are Canadian. | |
| 12:52:49 | Mike: I've mentioned XMD before, back in August at the turn. LOL I see we also tore NT apart that day too. http://www.trendvue.com/doc/8046/ | |
| 12:53:34 | Mike: I may not dabble in XMD this time... need to see how much energy plays a role in that one. |
As you can see, padding out your portfolio at major market turns with some shares in a small, mid-cap and tech-weighted ETF can dramatically improve performance. Generally when the market is turning I will try to establish new longs in only a few stocks, and overweight heavily in an ETF such as QQQ or QQQ and MDY (or XMD:C in Canada). As the first push up from the market turn starts to weaken, I may sell off some of my ETF holdings and prepare to redeploy the cash into specific stock names as they pause as well.
The advantages at a market turn (or continuation such as what the market may be facing this week) are plentiful:
- quickly gain exposure,
- gain diversification without losing much in the way of performance (but ETF selection is very important),
- generally reduced transaction costs, and,
- the ability to very quickly exit if a market turn fails.
ETFs can play a useful role even for the short term trader, and are the Swiss-Army knife of tools for the medium to long term investor.
Here is my watch list including US and Canadian ETFs, formatted for various charting applications:
- ETFS-NEOTICKER-IDS
- ETFS-YAHOO
- ETFS-ESIGNAL
- ETFS-TRADESTATION (No Canadian symbols)
Other Resources
- Amex stock exchange ETF center
- ETFs traded on the Toronto Stock Exchange
© 2004 Michael Watkins
There is a reason why I always caution patience in the hours leading up to a Federal Open Market Committee meeting and news release, and especially for the period immediately after the rate policy announcement.
Its been my experience that more often than not, the initial move is countered by a completely opposite move. The direction price takes into the close is far more interesting and instructive than the first moves out of the gate at 2:15:01.
As for the news itself, there is nothing “new” to report, which seems to be what the market is having trouble digesting.
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 2 percent. [a given]
The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions have improved. Inflation and longer-term inflation expectations remain well contained.
The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability. More >
No change in outlook is probably good news overall, but given the recent strong run up, booking profits must retain some appeal.
In the meantime. The upper (ES, YM) end and the base (ES, YM and NQ) of the ranges built up over the last 5 days have or are now being tested, and its likely that the ultimate direction going forward will remain a bit of a question until tomorrow’s session.
What to do? Without a clear move one way or the other, I shall trim weak looking positions (more than likely will dump OCX.SV:C) and hold any new positions that remain strong into the close (AL, DEN:C).
Today's transcript.
Click on the title above to expand this document.
Wednesday November 10th closing data.
Click on the title above to expand this document.
Statistics for Wednesday November 10
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 440 |
|---|---|
| Symbols in Down Swings | 334 |
| Up/Down Swing Ratio | 1.31 : 1 |
| Advancers | 49% |
| Decliners | 48% |
| Unchanged | 2% |
| Close > 20EMA | 49% |
| Close > 50SMA | 80% |
| Close > 200SMA | 61% |
| 20EMA > 50SMA > 200SMA (trend up) | 40% |
| 20EMA < 50SMA < 200SMA (trend down) | 13% |
End of day wrap up: Full of sound and fury, signifying nothing—perhaps William Shakespeare was a trader?
In the end price ended up still within the recent range traced out since November 5th, so the mission is simple: detect a pass or fail of any test of the upper or lower end of the range and act accordingly. I’ll write more on this in the morning before the open. Good night all!