Thursday, December 16, 2004
Issue Contents:
| 09:00 | The Day Ahead Economic releases and news. |
| 09:10 | Heads Up: S&P 500 Consolidation pattern. |
| 09:28 | Swing Trade Setups Featured charts for Thursday December 16th. |
| 11:10 | Intraday Update Dow, S&P |
| 15:13 | On The Edge Heads up proves timely, what next? |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 19:35 | Swing Scanner Results Thursday December 16th closing data. |
| 20:20 | Market Statistics and Daily Wrap Up For Thursday December 16th. |
| 20:40 | Administrative Notes |
Good morning, on this the 351st day of 2004. Today the White House U.S. economic conference continues; The US current account deficit hit a record $164.71B although was shy of expectations so perhaps the market will treat that as “good” news1, for a little while at least. In the “good” news column, the volatile initial jobless clams number turned in the biggest 1-week decline in three years, although if you remember last week’s unexpectedly high number, the two have the effect of averaging out.2
Of particular note coming up later today is the release of minutes from the last FOMC meeting, and, the Philly Fed Index as its considered to be a good preview of what to expect from the national Purchasing Managers’ Index.
US Market Calendar
- 8:30 am: Current Account – Q3
- 8:30 am: Housing Starts – November
- 8:30 am: Building Permits – November
- 8:30 am: Initial Jobless Claims – Week of Dec. 11th
- 12:00 pm: Philadelphia Fed Index – December
- 2:00 pm: FOMC minutes from November meeting
- 4:00 pm: Money Supply
Canadian Market Calendar
- 8:30 am: International Securities Transactions – October
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.
2 U.S. Initial Jobless Claims Fell by 43,000 Last Week
At the close yesterday price spiked on an attempted breakout of the range, closing back within the range.
This pattern is called an “ascending triangle” and is normally considered “bullish” in an uptrend. Myself, I prefer to call consolidation patterns “periods of indecision” which may resolve in either direction.
One thing this pattern tells us is that price has to break up and out of the consolidation ASAP or a retest of yesterday’s lows will be seen which will either pass or fail. Should that test fail, then a change of trend will be in place in this intraday time frame.
So this morning we should be hunting a sucessful breakout on the long side and failure of yesterday’s lows on the short side.
Featured setups from Wednesday December 15 closing data symbol scan
Jump to: Long Setups | Short Setups
Notes for the Day
Keep in mind the “heads up” from this mornings newsletter.
Entry and Exit Strategies
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.
Retracement or Pause in Up Swing / Up Trend
SHW – daily
SHW – weekly
SHW – paint – first pause after breaking the down trendline. If it clears the “breakout” bar of 4 days ago then it will also be pushing up above a “hammer” on the weekly chart.
GE – first pause after a “breakout”
PLMO – first pause after a “breakout”
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 Bottom – Continuation
JNPR – for whatever reason communications tech is suffering more lately. Sell short alert just under yesterday’s low, demand it clear the two day low and hold only if a decent profit cushion builds up.
PCA:C (TSX) – oil – stealth bear flag above a test of bottom.
Whenever a test of top is in front of us we need to get our radar spinning faster.
Dow Industrials futures are retesting the recent highs for a third time after initially failing the test yesterday. If this test fails I will be re-establishing a short in this name; I won’t close out DIA long swing trade from last week’s lows unless this range low breaks solidly.
S&P 500 futures are also primed to retest. Note it failed its test of top as well the other day. If it can’t push higher, I will be re-establishing a short in ES and tightening up stops in long positions, particularly recently entered positions.
Market internals have been weak throughout the morning – these tests are therefore important – only a pass and push up will turn the internals around.
Oh what a difference a day can make. Market internals currently show heavy selling pressure on Nasdaq with down volume almost 3 times that of up volume. For almost the entire day, even as the S&P and Dow were rising, decliners were outpacing advancing issues.
NQ Nasdaq 100 futures- failed test of top Dec 15; acted far weaker than other indexes ever since. The key here is this level around 1615 where price is in danger of trading below the highest trading range. IF that happens, and price starts trending (lower swing highs and lower swing lows) in significant time frames (such as the 15M charts) then we will call this a change of trend in the bigger picture, until proven otherwise.
As it is, on the daily charts of COMPX and NDX a new down swing has been initated as of today. Since we can’t know whether this is “the” top of the market of 2004, the only thing we can do is act defensively with our holdings where individual issues warrant such action.
Looking at the S&P 500 we see a different picture – price has broken out of the most recent trading range and is now merely pulling back to it.
Its important that the S&P 500 find support here; if price pushes down into the range below then longer term investors should be at yellow alert; if it breaks the recent range it will have by definition changed trend and thus a red alert justified.
If price holds support we’ll want to look for new long swing trades tomorrow. And if it doesn’t, stocks which made a minor move up today will be good candidates for selling short tomorrow.
Today's transcript.
Click on the title above to expand this document.
Thursday December 16th closing data.
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Market Statistics and Daily Wrap Up
Statistics for Thursday December 16
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 480 |
|---|---|
| Symbols in Down Swings | 288 |
| Up/Down Swing Ratio | 1.66 : 1 |
| Advancers | 29% |
| Decliners | 70% |
| Unchanged | 1% |
| Close > 20EMA | 29% |
| Close > 50SMA | 81% |
| Close > 200SMA | 71% |
| 20EMA > 50SMA > 200SMA (trend up) | 52% |
| 20EMA < 50SMA < 200SMA (trend down) | 8% |
Even though 1.66 : 1 symbols remain in up swings, only 29% of stocks in our symbol list advanced today.
Note: Our advance / decline and all other statistics are based only on the 740 or so symbols in our symbol list. This list is updated every quarter and is based on NYSE and NASDAQ stocks which trade the highest average volume, filtering out low priced issues. Since its these stocks that truly move the market as a whole, it makes sense to base our statistics upon them rather than the entire market.
If we look at the total market, on the NYSE today 64% declined, while 62% declined on NASDAQ.
We have a situation here where 63% of stocks in our universe are still in up swings, yet 70% of these same stocks closed lower today than yesterday. The two statistics conflict – clearly the market is at a critical point here. Incidentally this also tells us that there were a lot of inside days, up bars that closed lower (such as WMB or PLMO which was a long candidate never taken as the intraday price action said “no!”) as well as down bars in up swings.
Despite the intraday sell off, during the regular session the S&P futures held support so far – so we should consider stalking long entries, particularly those where stocks remain in an upswing but now have a single down bar. For example:
CAG (ConAgra Foods) offers a single down bar in a still intact upswing. We can stalk this as a long trade if Thursday’s high is broken.
In summary, even though we can see how the market could push higher, lets not forget to bear in mind that Nasdaq COMPX has:
- until proven otherwise, failed a test of its 2004 high and more importantly failed a retest of the recent swing highs
- started a new downswing today on the daily charts
- sold off on fairly high volume.
- declining volume was also double that of advancing volume on Nasdaq
Whether today was a last plunge before a move higher, we’ll only know in time, but again we’ve had to add to the cautionary notes we’ve been making over the last several days.
Schedule
I’m working hard on getting well again – so far I seem to be beating the pneumonia back although I now am quite beat today after sitting through the entire session. I do expect that by Monday next week I’ll be back to my usual productive self. For Friday’s session I expect to be available for at least the critical early hours and the close, if not most of the session.
It cannot rain but it pours
I have another item now on my list of things to do, which sadly is growing quickly while I have been ill. I’ve just discovered a major problem with our email system – several weeks back we were having messages quarantined due to false “SPAM” positives. Unfortunately we’ve had to implement a rather draconian system because we get literally thousands of spam messages each week. Its quite overwhelming and rather depressing!
I thought I’d fixed this issue at the time, but apparently made it worse. Thankfully a client followed up with me by phone regarding a request or I still would be oblivious.
If you’ve sent requests to clientsupport@trendvue.com and not received a response as yet, now you know why. I shall be sifting through the 6,323 spam messages currently quarantined to find legit email and will catch up on any requests by the end of the weekend; also we’ll be changing our public-facing email addresses and putting a “requests” form up on the site to deal with this spam issue once and for all. A note will go out to everyone once that is implemented.