Friday, December 3, 2004
Issue Contents:
| 09:19 | The Day Ahead Economic releases, news and market direction comments. |
| 09:28 | Swing Scanner Results Thursday December 2nd closing data. |
| 14:29 | Market Update Caution warranted. |
| 15:02 | Quick Take: Currencies WIth the dollar making new lows... |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning, on this the 338th day of 2004. Disappointing job creation numbers on both sides of the border are influencing pre-market trade, with US new jobs statistic coming in at almost one half of what was expected1, and this morning’s report included downward revisions to figures from the past two months.
Market Direction
So the question of the day – will the pause we noted in yesterday’s Market Direction note give rise to a reversal today, or not?
Dow Jones US Markets Index
A doji following a breakout is a perfect example of indecision.
Yesterday I noted on the NYSE that advancing/decliing issues and volumes made a little hook downward (I plot the volume figure inversely just to make it easy to fit on one panel – so rising red line = increasing declining volume). Earlier this week a large advancing volume spike was also noted – we see these at only two market juctures – 1) at the start of a new leg up and 2) very near the end of a major up swing. So there is another reason for caution, if the market does not power up today.
At this point pre-open futures are heading weaker and European bourses have moved down more than 1/2 % on the payroll news. Perhaps its up to this morning’s ISM report will turn the market back up; but for any existing positions, lets think defensively here.
Other Notes
I’m still battling a bad cold here and am running late. Swing trade featured charts this morning will be published directly in TrendVue Trader Talk – join us live of click on the provided link to catch the almost-live transcript (refresh once in a while manually).
US Market Calendar
- 8:30 am: Employment Situation1
- 10:00 am: ISM Services Non-Manufacturing Survey
Canadian Market Calendar
- 7:00 am: Employment Report – November [2]
- 8:15 am: Foreign Reserves – November
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 November Job Growth Unexpectedly Soft
2 Unemployment in Canada up in November
Thursday December 2nd closing data.
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Sometimes when I write cautionary notes I wonder what clients must think. After all, markets have been screaming higher, Intel reported big numbers, futures were up strongly pre-open – what could go wrong? After all, mostly everyone seems to feel that the fundamental picture is rosy. So why so cautious?
The answer is, it doesn’t matter. In the end, price is the most important fundamental.
This morning, armed with some caution derived from the analysis work done, we were prepared to go short if a reason arrived:
10:09:16 Mike: Spike here on ES 5M.
10:11:18 Mike: I am going to short ES or YM here provided I get an up bar on the 1M
10:11:20 Mike: here we go.
10:11:39 Mike: Short 1196.50
10:12:03 Mike: Really want to see this go quickly.
Entry, turns into:
I’ve taken profits on 2/3’s of my ES position but later entered a new YM short during the lunch hour. If a deeper decline is indeed ahead for the market, I’ll get to keep these with a simple break even stop. And if not, no pain will be felt, as we made sure to pay ourselves by taking profits. Its hard to argue with 5 points of quick profits on a full sized futures position; the approach I favour is to take profits on 1/2 or 2/3s and let the rest ride as long as it makes sense to do so.
Where to?
Since the market is clearly not trending down in daily and weekly time frames, there is no reason for us to yet believe that a significant down swing is before our eyes here, but we do have a number of data points that suggest caution. Following today’s session we’ll dive into the market internals a little more deeply and see what we can uncover.
In the meantime, this colour coded caution scale might be useful to all. Provided the market can hold the top of the range which has been forming, buyers will remain confident about taking new positions. Using our approach of “letting price prove itself” would be advisable.
If the top of the range (roughly 1190) fails, then provided price does not retrace more than about 50%, buyers may still retain control of the market. Below 50% and sellers will get far more aggressive. If the range bottom fails, then the classic definition of a change in trend has taken place and what was trending up will now be trending down.
As we can see, a trend change covers a lot of distance. Longer term investors need to think carefully about what they are holding and look at taking profits on positions which would turn negative if the market were to move down a number of days.
We never know if a “top” is going to be a short term event (days) or a medium term (weeks) or cyclical top measured in many weeks or months. All we can do as investors and traders is decide how profit taking factors in with our objectives and act in a consistent manner.
Fortunately for shorter term swing traders, the decisions are easy. If 2, 5, or 10% is in a position and that position is likely to fail, stops are moved up tight and we don’t cry if stopped out but the market moves higher. After all, our goal is not to make 3, 5, or 10% a year or quarter with that money, but to turn it over frequently.
USDJPY reversing most of its recent gains. Perhaps intervention talk or actual intervention will have the opposite effect than desired. We’ve seen that before.
USDJPY weekly – if they are going to intervene its time to get going!
GBPUSD – look at the nice trend which emerged from the triangle we highlighted weeks ago. New highs after a test of top.
GBPUSD weekly – new multi-year highs.
USDCAD is bouncing here, hooray, I need to transfer some more funds. Resource based economies like Canada and Australia will probably see USD firm up unless the recent selling is “it” for the resources sector.
USDZAR – the Rand pulled off a sharp reversal against the USD today, over 2% change.
USDZAR weekly – we can see a very large consolidation pattern which if it breaks down and stays down points to much lower USDZAR pricing. Its at times like these that “failure” has to be watched carefully – sudden reversals are not uncommon. But reversals can fail too!
USDSEK weekly – continuing its decline.
US Dollar Index – currently this is trading at 80.98, virtually the lows of the day, down 1.21%. Targets coming up…
Today's transcript.
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