Friday, November 5, 2004
Issue Contents:
| 08:45 | The Day Ahead Economic releases and news. |
| 09:18 | Swing Trade Setups Featured charts for Friday November 5 |
| 09:43 | What next? Managing the gap. |
| 11:31 | Intraday Update Stock Indexes |
| 11:48 | Quick Take: Currencies No surprises here... |
| 15:06 | Crude Realities Slip slidin' away... |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 16:48 | Swing Scanner Results Friday November 5th closing data. |
| 17:02 | Market Statistics and Weekly Wrap Up For Friday November 5th. |
Good morning, on this the 310th day of 2004.
Today’s economic calendar is now mostly clear sailing – markets got their big dose of economic news here before the open, with the monthly jobs report showing 337 thousand new jobs added, even as the unemployment rate rose to 5.5%, up 1/10th of 1 percent1. Some analysis I’ve read shows a significant number of “new” jobs being added as a result of the impact of hurricanes in Florida unwinding – but regardless of the reason and rationale, the market currently likes the number and pre-open index futures are up sharply.
The US Dollar index is also up, putting pressure on Gold. Once the initial shock wears off we’ll see if other factors which were weighing in on the dollar reassert themselves.
US Market Calendar
- 8:30 am: Employment Situation
- 10:30 am: Weekly Leading Index for the week ended Oct. 29
- 3:00 pm: Consumer Credit
Canadian Market Calendar
- 7:00 am: Employment Report – Oct.
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.
1 Dollar Advances; U.S. Employment Growth Accelerated in October – Stronger employment growth may raise expectations the Federal Reserve will lift its benchmark interest rate after three increases since June, said Daniel Katzive at UBS Securities LLC, before the data’s release. ``The dollar has tended to do well when Fed expectations are adjusting higher,’’ said Katzive, a currency strategist at UBS in Stamford, Connecticut. Traders ``may need to price in more Fed tightening,’’ he said.
Featured setups from Thursday November 4 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
Pre open futures are still up strongly, meaning we’ll see a gap open. Our first priority is to ensure that we don’t get stopped into trades that immediately reverse and head lower for the entire day – the infamous “gap and crap”. So in early trading we’ll look for minor dips, or a gap fill, and try to get long there.
Some stocks may not gap up – there may be no option there but to buy at the high plus 1 or 2 cents and follow price intraday.
No one said this was easy, but at least we know the market wants to try to go higher. Interestingly, so does oil – only marginally so far – so it will be interesting to see how that plays out.
Lots of charts, only a little commentary today.
Entry and Exit Strategies
Repeated for new clients
Entries: Each chart posted includes the TrendVue High/Low indicator in the chart legend, showing the high and low of the prior day. We refer to these values frequently for setting stops, alerts and initial protective stops.
Our trade entry methodology stresses that price should prove to us where it wants to go, consequently all of our setups involve placing entry stop/stop limit orders where a trade will be initiated for us automatically, if price is able to move in the expected direction.
When price does not comply, we evaluate the setup to determine if it is either a) an expanding pattern or b) an invalidated setup. For example, a 3 bar bull flag setup that does not trigger can be followed up the next day with a buy stop above the new 4th bar, provided that price doesn’t invalidate the bull flag pattern.
Exits: Once in a trade, we must place an initial protective stop as soon as possible. Consider this stop your crash stop – an emergency measure which you hope will never get used, but is there for your protection in case you lose all connectivity to your broker or some other unforseen event takes place. The initial protective stop, unless noted otherwise, is always at the opposite end of the bar used to trigger a trade.
For example, if our trade setup for a long trade is based upon a break of yesterday’s high, we will use yesterday’s low as our initial protective stop.
The next task for us, once in a trade, is to find the earliest reasonable opportunity to move stops up. Trade and risk management is a highly personal topic; we can only relate to what works for us. In general, once a trade is substantially profitable, or has started to trend on a 10 or 20 minute chart intraday, I move to a break-even stop immediately.
Once the trade has surivied its first day, we are already on watch to look for our profit exit. Here your personal objectives come into play. A longer-term investor using swing trading techniques to improve entry and exit will tend to give a trade some room. Our recommendation is to use the break even stop until the stock starts to trend (higher highs, higher lows or the reverse in a down trend).
Short term swing traders will tend to use price extension estimates and pre-place exit orders at these estimates. This discussion goes beyond the scope of our daily swing trade service, however we are happy to entertain questions in TrendVue Trader Talk on any subject.
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.
Test of Bottom – Reversal
Retracement or Pause in Up Swing / Up Trend
When in doubt, try an ETF!
QQQ
CSCO (also noted that JNPR looks even stronger, but perhaps CSCO has more room to run right now)
LU far stronger than NT
MOT – has a local test of bottom here – first major overhead target marked out.
EMC may continue here and confirm a breakout.
HAL some oil services companies are looking buyable here but the group as a whole may not have stopped selling off. Caution.
Test of Top – Continuation
MFC:C (TSX)
POW:C (TSX) – at least resistance is right near trigger, so it will work or not, quickly I think.
NA:C (TSX) – banks
TWF.U:C (TSX) Timberwest Unit Trust. Caution, trusts don’t always fair well in rising rate environments.
TXN (and perhaps some other SOX names) – looks like it can continue from its breakout here, market willing.
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.
Test of Top – Reversal
Retracement or Pause in Down Swing / Down Trend
CAM
Test of Bottom – Continuation
Special Situations
SUN – long or short, but long today – perhaps today is an ideal day to try to capture this as it exits the triangle. Tight stops below.
TD:C (TSX) – banks – tricky long entry. Aggressive traders only.
QLTI – not a great long setup here but I know a number of clients watch this name. When markets are all going up, sometimes a down bar is all we have for a setup.
This morning dealing with trade entry as markets gap up will be the single most important thing we have to do.
Early on here we are hunting the first retracement of the morning. We have to take the first bounce in stocks and ETF’s, but we also have to move stops up tight in case the first bounce fails.
Note: US Dollar now continuing its sell off…
So, our caution was not misplaced at all. Current picture:
Price is currently trading below the opening low. What happens next is critical for markets. A failed bounce from here will invite a wave of panic selling, setting up the possibility of a massive spike top. As we’ve been noting in the TrendVue Swing Index, there are still quite a few stocks remaining in down swings on the daily chart – one more issue which leads to caution.
Bulls may look at the gap fill as a big gift, and step up to the plate – but they have to do it here and convincingly so.
On an individual stock basis, it would be wise to adopt a more cautious view at this point, especially for new positions—at least until or unless price can reclaim the top 50% of today’s range. Stay tuned.
EUR hits new historic highs against USD
CAD extends its gains, hitting new 12 year highs against USD almost every day here.
And other currencies in the basket which make up the US Dollar Index are also generally higher here against the greenback, resulting in a resumption of the already strong trend in place.
Just before hitting the sack very late last night I saw a news alert from Europe that top policy makers there felt “European economy is strong enough to tolerate strong Euro”, so there was every reason to suspect the USD would be weaker today. A strong jobs number, particularly coming off of hurricane induced weakness, would not be enough to shake currency traders from their fears of ever increasing US debt.
Slip slidin’ away, slip slidin’ away, you know the nearer your destination, the more you’re slip slidn’ away…
With all apologies to Simon & Garfunkel (now I am dating myself), the continuous Crude contract pulled back to the 50 period moving average on the daily – and the area of the September breakout above 49.
Crude may find support here – the key resistance level is Thursday’s high at 51.06. If price can’t move up above that level more or less directly, CL will more than likely retrace even more of its most recent rally and pull within the large range immediately below.
A firming up of CL would certainly help propel Oil Service Sector ETF OIH:
As well as help the Energy Sector SPYDR ETF:
Canadian iUnits ETF XEG:C
Fundamentals of these stocks certainly remain strong with crude at 49 or at 40, however a catalyst for a move up is always welcome.
Today's transcript.
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Friday November 5th closing data.
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Market Statistics and Weekly Wrap Up
Statistics for Friday November 5
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 615 |
|---|---|
| Symbols in Down Swings | 159 |
| Up/Down Swing Ratio | 3.86 : 1 |
| Advancers | 66% |
| Decliners | 32% |
| Unchanged | 2% |
| Close > 20EMA | 66% |
| Close > 50SMA | 80% |
| Close > 200SMA | 61% |
| 20EMA > 50SMA > 200SMA (trend up) | 40% |
| 20EMA < 50SMA < 200SMA (trend down) | 16% |
The number of stocks in up swings vs down swings did not expand materially, and we saw on an intraday basis price trade in the lower half of the trading range for much of the day. This leaves us with a note of caution before the weekend.
Sometimes the market is easy and screams “buy me, buy me” but more often than not those times are at relative lows, rather than relative highs. When everyone is screaming breakout, when everyone is pounding the table, giddy with recent gains, its prudent to be ready with a quick sell stop in case they all prove wrong. We’ve seen this happen time and again.
Weekly chart: COMPX, NYA, INX, INDU
In the meantime, until proven otherwise, price indeed is pointing up. On the NYSE the NYA Composite had a terrific week, pushing up and through the 2004 highs. Many of these names are also found in the S&P 500, and it too “broke out” of its range for the year. Pity the lowly Dow Jones 30 and Nasdaq indexes then, bringing up the rear.
Daily chart: COMPX, NYA, INX, INDU
Meanwhile, back on the daily chart we can see price started to contract today after a number of days straight up. This in conjunction with tests at the year’s high (NYA, INX) or nearby tests on INDU and gap on COMPX / NDX suggest we should be at least open to the idea of a potential pull back—more than likely a buyable pull back—early next week.
More analysis and swing trade setups, long and short, will be posted before Monday’s open. Have a good weekend!