Sunday, March 21, 2004
Issue Contents:
| 11:14 | The Day Ahead U.S. Market Calendar |
| 11:29 | Headlines and Reaction In the News |
| 11:52 | Volume Leaders NASDAQ, NYSE and AMEX Volume Leaders |
| 19:19 | SwingScanner Results Swing Trade Short List for Monday |
| 20:57 | Market Sentiment CBOE Equity Put/Call Ratio Analysis |
| 20:59 | Market Internals $VIX, $VXN, High/Low Statistics Analysis |
| 21:00 | The Swing Trade Today's Stock Picks |
| 21:00 | Swing Trade Update Update Open Positions |
| 21:02 | Stock Index Strategy I Part One $INDU, DIA, $SPX, SPY |
| 21:03 | Stock Index Strategy II Part Two $NDX, QQQ, $SOX, SMH |
| 21:04 | Intraday Futures Strategy I Stock Index Futures |
| 21:04 | Intraday Futures Strategy II T-Note and Bond Futures |
| 21:06 | Forex Strategy Six Currency Pairs |
Monday, March 22
- 11:00AM 4-Week Treasury Bill Announcement
- 11:00AM 2-Year Treasury Note Announcement
- 12:45AM San Francisco Federal Reserve Bank President Robert Parry welcomes high school students to a Fed exhibit in San Francisco.
- 1:00PM 3-Month Treasury Bill Auction
- 1:00PM 6-Month Treasury Bill Auction
- 1:00PM Chicago Federal Reserve Bank President Michael Moskow speaks about U.S. economic trends, to the Risk Management Association, in Chicago.
For earnings highlights, please see Monday's WSJ Earnings Calendar.
It's the weekend, and while there aren't too many market-related stories at the moment, I dug up a real Peter Lynch sort of nugget -- on Coke.
You know, with people so health conscious these days, it's no wonder companies such as Coca-Cola and McDonald's are all rushing to the marketplace with alternatives. While it might look like they're trying to help people become healthier, the fact is that they are cashing in big time. While we can buy a can of Coke for 20 cents at Costco, water costs many times more.
Of course, the problem with "healthy" is that not only must it look good, it must also be good. Coca-Cola is getting roasted over Dasani water this weekend in England. Incidentally, this brand of water is also found in nearly all of the fast food places that feature Coke, namely McDonald's here in Canada. And now we know it's not the real thing...
Dasani recall leaves Coke dangling over murky water
By Adam Jones and Betty Liu
Published March 19 2004 20:11(FT.com) - David Blaine is not the only American export to have misread the UK market in recent months. With the Dasani purified water debacle, Coca-Cola has emulated the US illusionist.
Just weeks after Mr Blaine was ridiculed by Londoners for dangling in a box above the River Thames, a stunt that was viewed more generously in his homeland, Coca-Cola has found itself pilloried for attempting to sell Dasani, an enhanced tap water that was deemed perfectly acceptable in the US.
"Sidcup Spring", the mockers called it, reflecting both the location of the bottling plant and the episode of Only Fools and Horses, the classic television comedy show, in which tap water is cheekily marketed under the brand name "Peckham Spring".
Whereas Mr Blaine completed his trick as planned, however, Coca-Cola has given its critics fresh ammunition by rushing into a voluntary product recall after discovering that Dasani contained illegal levels of bromate, a chemical that could increase the risk of cancer.
The unanswered question last night was how far up the corporate ladder the consequences would reach. The fault certainly lies with Coca-Cola itself, rather than Coca-Cola Enterprises, the member of its bottling network that actually makes Dasani in the UK.
The bromate problem was a consequence of added ingredients supplied by Coca-Cola in the same way that it supplies syrupy concentrate to bottlers for them to make cola.
The legal limit for bromate content is 10 parts per billion, Coca-Cola said. The Dasani it tested prior to the recall contained as many as 25 parts.
The Food Standards Agency, which regulates food safety in the UK, said there was no immediate risk to public health.
It also said that the increased cancer risk to anyone who had drunk Dasani was likely to be "very small". Coca-Cola has a free telephone help line for consumers at 0800 227711.
Coca-Cola sells more than 200m cases of Dasani annually around the world. The company said it is conducting similar tests on Dasani in other markets as a precautionary measure.
Coca-Cola Enterprises said the recall would not affect its balance sheet. The company said it had already tested its Dasani water in North America and found "no issue at all" concerning bromate.
Coca-Cola said this incident should not hurt the Dasani water brand as "consumers will understand the facts that this is an isolated incident . . . and it won't have implications outside the UK".
However, it said it was too early to say whether Dasani would be relaunched in the UK. "Clearly the focus right now is on withdrawing it," an official said.
Nor was there any immediate official estimate of how much the recall would cost.
The withdrawal began on Friday and was likely to be 80 to 85 per cent complete within 24 hours.
But while the cost of the withdrawal might not be great, the implications for Coca-Cola's attempt to reduce its reliance on sugary carbonated drinks - a particular target for criticism in the obesity debate - could be substantial.
Coca-Cola still has hopes of expanding Dasani in Europe but its ambitions for the UK may now be unrealisable.
Allyson Stewart-Allen, a London-based marketing adviser, said: "It is now going to be next to impossible for Coke to relaunch Dasani in the UK."
Neil Hedges, chairman of Fishburn Hedges, the public relations and corporate reputation consultancy, also felt a UK relaunch "may be just too much for such a new product."
This is in spite of the fact that Coca-Cola has followed best practice in product recalls by acting swiftly.
"They have done all the right things in terms of withdrawing everything very promptly," he said.
We will review the most active list along with the SwingScanner Result to see if there are any choice swing trade setups for tomorrow.
This list of swing trade candidates were generated by our SwingScanner software. We continue to refine scan criteria and will be adding more setups this week.
Buy Side Candidates
- Retracement - Bull Flag in Uptrend:
No symbols. - Retracement - Modified Connors 1-2-3-4 in Uptrend:
No symbols. - Test of Bottom - Modified Turtle Test of 20-day Low:
DD
NYB
NFB
ACE - Spike Bottom - Potential Extreme ADX Reversal:
MSFT
IPG
Sell Short Candidates
- Retracement - Bear Flag in Downtrend:
RCL
SINA
RTN
VRTSE
SOHU - Retracement - Modified Connors 1-2-3-4 in Downtrend:
TWX
VRTSE
AA
CCU
DOW
FON
HON
KR
INTU
CCL
BK
XRX
HIG
NITE
SINA
RTN
SOHU
AL
SDS
NTES
ARXX
RCL
XLB - Test of Top - Modified Turtle Test of 20-day High:
TGT
SUPG
When we last looked at the Equity P/C ratio, we discussed that the FearGreed indicator was closing in on a zone where previous short-term bottoms had been made on the way up. On the way down, this meant that bounces might be able to start, and we would need to see how strong they were, etc., since sellers were bound to come out on the weak, failing ones. We are still a long way from what we would call a "wash out after a long downtrend" extreme similar to that seen in early 2003.
For background information on market sentiment, please visit the Market Internals, Sentiment and Psychology section of the Knolwedge Base.
When we last looked at market internals, we noted that with the 5-day RSI of $VIX and $VXN were crossing back under the 70 line, setting the stage for a bounce. When traders use the word "bounce", they typically leave out the words "in a downtrend to short", since they presume that everyone will know that there is a downside bias to the price action. Of course, not everyone perceives it this way; that is how they often end up buying all the way down.
In any event, looking at the divergence in the Mamis Spread in the Dow Industrials that preceded sideways motion before the break to the downside got me thinking about all the stuff we wrote on the way up, marking the various phases along the sentiment cycle.
From the initial divergence in the $VIX weekly chart to the spike tops in the Net stocks back in October 2003 to the Elliott Wave 4 Triangle that set up the upside blowoff in the indices, I have dredged out some posts that sheds some light on how one trader perceives shifts in the tide:
2003OCT10: Chart Roundup
2003NOV06: Good Morning
2003NOV06: CBOE Market Volatility Index
2003NOV06: Floating the Boats Phenomenon
2003NOV06: Investor Watch List of Potential Spike Tops
2003DEC03: Weekly Major Stock Indices
2004JAN05: Market Sentiment
2004JAN06: Meanwhile...Elliott Wave 5
2004JAN06: Heads Up
2004JAN27: The Philosophy of Tops
2004JAN28: Survey of Indices
2004FEB02: Going to Extremes
2004FEB18: Euro vs. the Dollar
2004MAR02 Stock Index Strategy
For background information on market internals, please visit the Market Internals, Sentiment and Psychology section of the Knolwedge Base.
Let's take a look at the list of candidates generated by the SwingScanner and see if there are any really ideal setups.
There are no buys on the list that I personally want to swing trade with the exception of MSFT, and then only on an intraday basis for a quick scalp.
On the short side, RCL is on Bar 3 of a simple bear flag with overhead resistance in the form of the 20-day EMA and the 50-day MA. We've seen a decent bounce over the past three days, but volume as contracted and the trading range has been small, indicating weakness. Traders who wish to set up for this short sale on a swing trade basis should set their alarms at last Friday's low. This is one occasion where it might be a good thing to use our in-the-money option strategy, and buy APRIL 45 PUTS. The initial stop loss will be $41.69. The first downside target is a test of the March 16 swing low of 38.30. SINA is in the same boat, and traders interested in the swing trade on the short side can do it using the same method with APRIL 40 PUTS.
We can see that VRTSE is similar to RCL but note that the ADX is now 37 on the daily chart, meaning that the downtrend is quite directional and advanced. While it can certainly go down more and hit the downside target, we must be mindful that every retracement in a trend is one close to the part where it bends, and respect the fact the as the downtrend ages, there comes a point where the sure thing might not be so sure anymore. Traders who go for this one should reduce trade size for this setup. We note that SOHU is in the same boat.
As we go down the list, we can see some setups similar to RCL (CCL, DOW, CCU, HON, SDS) while INTU, KR, NITE are closer to VRTSE.
AA, AL and XLB are what I would consider surprise downside breakout candidates, and the usual way to stalk these on the short side is to trail a sell stop under the previous day's low when the chart is in an upswing as it is now. At this point, the sell stop for a swing trade would be triggered on break of last Friday's low, with an initial stop loss placed at last Friday's high.
For background information on our approach to swing trading, please visit the Swing Trading Principles section in the Knowledge Base.
We did not carry forward any stock swing trades into this week.
At the beginning of last week, we were looking for the bounce to start on the daily chart, and if it was weak one, we expected sellers to come out. When it finally materialized just ahead of Quadruple Witching, we were cautious in terms of swing trading even with a good setup like this; instead, we took chunks out of the swing trade setup intraday using a higher leverage vehicle using e-mini S&P 500 futures.
To recap, after the breakout of a congestion pattern, we typically look at the first bounce to see if it presents a good shorting opportunity. With the 20-day EMA and 50-day MA providing resistance overhead, we know that the market has a downside price bias.
Technically this is a retracement pattern called a bear flag. As per the usual method outlined in the Technical Trader's Handbook, the swing trade on the short side was triggered on break of the March 18 low, with an initial downside target of the 3/16 swing low.
Comments for the NASDAQ 100 and Semiconductor index are the same as $INDU and $SPX, except you can clearly see that tech stocks were even more weak with only a single up bar, having long ago sunk below the 50-day MA. Downside target is a test of the March 16 swing low, and the $SOX is already there.
Friday saw the rising wedge seen on the 45-minute NQ chart break and come close to hitting the downside target, which was the base of the wedge. On this test of low, which is also the first downside target of the swing trade setup seen on the daily chart, we'll see if it can hold or if it sliced through for some continuation.
Same setup going into the open for the 45-minute SP/ES chart.
Same setup going into the open on the 50-minute DJ chart.
No comment on T notes and bonds this morning.
When we last looked at FOREX, we noted that there were two interesting setups, one on the EURUSD and one on the USDCHF. Well, not much has changed. We're still waiting for the triangle on the EURUSD to break out, while on the USDCHF, so long as it stays above the 1.24ish area, there is potential that this may set up an upside surprise.
Another pair that we should be watching at this point is the GBPUSD. I've drawn a line in the 1.7824 area, and on this bounce up, we should be on the lookout for resistance at the 1.85 area. If sellers show up there as they did previously back in January, we may be able to mark out a right shoulder here.