Wednesday, March 3, 2004
Issue Contents:
| 08:34 | This Morning Headlines and reaction. |
| 08:40 | Market Sentiment CBOE equity put/call ratio analysis. |
| 08:50 | Market Internals $VIX, $VXN, high/low statistics analysis. |
| 08:57 | Intraday Strategy DJ, TY, US, SP, NQ. |
| 09:01 | The Swing Trader Update open positions. |
| 09:19 | The Swing Trader Today's stock picks. |
| 09:49 | Reminder Teresa away tomorrow. |
| 10:11 | The Sector Investor Focus on $HGX and component stocks. |
| 10:13 | Economic Data Summary of today's releases. |
| 16:16 | Active Trader Transcript Real time forum log. |
| 20:06 | Volume Leaders NASDAQ and NYSE. |
| 20:15 | The Day Ahead U.S. market calendar for Thursday. |
| 20:16 | SwingScanner Results Swing trade short list for Thursday. |
There are a number of data points on today's U.S. Market Calendar, and increasingly, investors and market strategists are focusing on economic data as we go into Friday's employment report.
While officially there is no inflation, all of us here in the land of the living are not "ex food and energy".
(WSJ.com) - Gasoline prices are moving toward record levels on higher crude-oil prices, strong demand and a shift to summer blends.
Both 10- and 30-year Treasury bond prices have been eroding of late, putting upward pressure on rates. They're starting to creep up a little here...
The CBOE equity put/call ratio was .511. No extreme readings to report, but I have to say, look at the trend over the past week or so since the 2/24 swing low on the daily charts:
2/24 .652
2/25 .620
2/26 .521
2/27 .594
3/01 .554
3/02 .511
You can see they are getting more and more bullish, and later today, I'll have a little ditty for you about how wild it's getting out there.
As discussed, we've been watching $VIX closely in case of reversal, and yesterday saw the 5-day RSI hook up above the 30-line to flash one of the Connors $VIX Reversal signals. We never use it as a setup, so what we'll be doing is to watch for breakout conditions after inaction on an inside day on the S&P 500 index yesterday.
As discussed in the Stock Index Strategy, loads of traders will be watching for the move too, because it's been in a congestion pattern for almost two months. Remember, it is often the case that IF yesterday's high or low is not taken out decisively and it holds on an intraday test, THEN price action goes directly to the opposite end of yesterday's price range to test revolve there too before the real breakout takes place.
No signals from the $VXN today.
The swing trade on the 10- and 30-year T Bond futures set up in yesterday's Intraday Strategy were hit. At this point, we'll be watching to see if there will be downside acceleration.
On the stock index futures, you can see that DJ is at the lower edge of the pattern. It's do or die time. Not much on the daily SP chart, but the two-day candlestick pattern on the ND chart, while note perfect, is a bit of a negative, close to a dark cloud cover pattern. Basically, we'll be looking for a breakout on the SP/ES today while we need to see continued downside action on the ND/NQ to confirm the candlestick pattern.
Let's update any potential open positions.
We discussed the stalling of ETR at Target 1/resistance and what the doji-like candlestick was indicating. Down day yesterday should have taken everyone out of the trade.
HAL did a reversal day, and if we use the location of the peak value of ADX, we can make the argument that this might be the old 1-2-3 exhaustion pattern. Trading back under the 2/17 swing high of 31.87 will likely bring on some sellers, and that means there may even be room for some hit and run on an intraday basis on the short side. I think I'll just leave it, particularly if the broad indexes are about to give.
I also wanted to point out the volume trend here, which was lower and lower as HAL moved higher and higher. It's typically a sign of weakness.
Now, to update yesterday's new picks.
ADCT did not trigger. I'll leave this one for now, even though traders who are interested can move the buy trigger down to Tuesday's high.
BEAS, ERTS, BRCD and CL were big patterns on the weekly chart, and there is no change in the instructions.
As expected, CSCO did the whipsaw and closed negatively. We'll give up on this one for now.
GMST arrived at the swing trade target but sold off, leaving a pretty nasty looking candlestick on the daily chart. Leave this one now.
There are no new picks today, as I continue to work on the criteria for our SwingScanner, as discussed. If think I can get it going today so that we have lists of candidates about an hour after the close each day. This way, you can look at them yourself first the night before.
I worked on some code for bull flags, and this was yesterday's list: DNA, GPS, PETM, PDLI, SKM, ILXO.
Actually, that is not bad for a first stab, but I'll be refining it during the day today, and you'll have lists starting tonight.
I have a number of meetings tomorrow, and will be heading out of the office at around 11AM Eastern time. There will be no afternoon segment Thursday's newsletter as I have a dinner meeting out of town.
Since real estate has captured the public's imagination, there is no better place to start on our sector analysis than the PHLX Housing Sector index.
(PHLX.com) - The PHLX Housing Sector is a modified capitalization-weighted index composed of 21 companies whose primary lines of business are directly associated with the U.S. housing construction market. The index composition encompasses residential builders, suppliers of aggregate, lumber and other construction materials, manufactured housing and mortgage insurers.
For trading purposes, options are available on the index, or we can deal with the component stocks and options on the individual components, if available. Let's go down the list as it stands today.
ASD American Standard Company Inc.
BCC Boise Cascade Corp.
BZH Beazer Homes USA Inc.
CHB Champion Enterprises Inc.
CTX Centex Corp.
DHI D. R. Horton Inc.
HOV Hovnanian Enterprises Inc.
KBH KB Home
LEN Lennar Corp.
MAS Masco Corp.
MDC MDC Holdings Inc.
PHM Pulte Homes
PMI The PMI Group Inc.
RDN Radian Group Inc.
RYL Ryland Group Inc.
SPF Standard Pacific Corp.
TIN Temple-Inland Inc.
TOL Toll Brothers Inc.
USG USG Corp.
VMC Vulcan Materials Co.
WY Weyerhaeuser Co.
And now onto the technicals. I'm not aware of any exchange traded funds for this index, so what we will do is do a relative strength analysis first, followed by a look at the charts of the top-weighted components of this index.
Daily chart, relative to the three broad market indices. Obviously has been outperforming the Dow, S&P and NASDAQ 100.
Weekly chart. This is where I tell people that the only tool you need when investing for the long term is a plastic ruler. Just apply to the trendline of the ratio chart, and when it breaks, "fan" the line once. What we know is that the outperformance is smaller this time since the pink line is less steep, and therefore to be careful, check escape pods, etc.
Monthly chart. I've put the pink arrow under the last swing low of the ratio chart. If that breaks, we will have to seriously examine the component stock carefully. Since it's been going straight up, we have to be aware of potential spike tops on extreme bullish sentiment.
The first component chart is WY, monthly. It's trying to "breakout", and so it will have the benefit of the doubt unless it sinks back under the pink line.
MAS monthly chart is similar to WY. Presumed innocent until proven guilty by price action that sinks back under the pink line.
MAS, weekly. It's a test of top, and should it fail here, the first downside target/potential support at the 20-week EMA while the second target, the lower boundary of the trading range marked in pink, is just at the 200-day moving average.
LEN, monthly chart. Classic parabolic spike action, like the dot com craze.
LEN, weekly. Test of top again, and should it fail, the downside targets/potential support in the 45.71 and 41.50 areas.
BCC, monthly. Again, going back under the pink line would be negative.
BCC, weekly. Test of top again, with downside target/potential support at 31.60.
ASD, monthly. Like LEN, another classic parabolic blowoff. When the top comes, it will likely be a big spike reversal.
ASD, weekly. Extreme ADX readings for this symbol and timeframe, setting up a potential Extreme ADX Reversal sell signal. This is also a test of top, but the kind that I call "spike with no swing".
DHI, monthly. Another classic parabolic blowoff. I deliberate use arithmetic scale on my charts to remind myself what it really looks like. Don't like to fool myself with log charts. Nope.
DHI, weekly. See how it survived a test of top in the 30 area? This will now be a potential area of support below should there be a reversal.
CTX, monthly. Another classic parabolic blowoff.
CTX, weekly. Similar in look and feel to DHI, but this week's candlestick is looking dangerous. I'll keep this on the watchlist. Last swing high underneath at 100 provides potential support should there be a big reversal. I'll pull out the book later, but I think this is also some sort of Connors Extreme ADX divergence sell setup too.
Last, but not least, is PHM. Same parabolic chart on the monthly.
Hmm...and on the weekly, potential support should be just under 50.
The idea here is that if there is a sudden reversal, and we start to see the index falling through potential support areas identified, that is probably a good time to consider taking profits on a long-term basis.
MBA Purchase Applications Index 422.5
(Econoday.com) - The Mortgage Bankers purchase index held steady in the latest week, overshadowed by another sharp rise in the refinancing index which may be indicating that a new round of home refinancing, and along with it prepayments in the mortgage-backed securities market, is in full swing. The purchase index for the week ended Feb. 27 slipped to 422.6 from 423.5 in the prior week, indicating sluggish conditions in the housing market consistent with other economic data including Monday's construction spending report. The refinancing index rose 5 percent to 3532.2, the best reading since the refinancing surge of the summer.
Business Activity Index 60.3%
The business activity index, from the ISM non-manufacturing survey, fell back to 60.8 in February from a level of 65.7 in January. The drop was significantly larger than expected and could be viewed in a negative light by equity investors, although bond investors may be pleased to see the weaker reading. Actually, any level above 50 percent reflects expanding business activity, and a level of above 60 percent still reflects healthy activity.
Most of the components of the ISM non-manufacturing survey posted declines in February from high January levels including new orders, employment, supplier deliveries, order backlogs and even prices. The price index decreased to 57.3 in February from 59.7 in January. This is a far cry from the February ISM manufacturing survey where the index had jumped to 81.5.
All in all, the report shows healthy activity for the month, but the decline from January was larger than expected.
The Beige Book
(Econoday.com) - The Beige Book was prepared at the Federal Reserve Bank of Philadelphia based on information collected before February 23, 2004.
"Economic activity continued to expand in January and February, according to information received by Federal Reserve District Banks. Growth was variously described as moderate in Boston, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, and Kansas City, firm in Minneapolis, sound in San Francisco, and showing signs of accelerating in New York, Richmond, and Dallas.
Consumer spending rose in most Districts. There were gains in sales of general merchandise in January and February in all Districts except St. Louis, which reported a slight decline. In contrast to the general improvement in merchandise sales, motor vehicle sales slowed in most Districts. Tourism activity increased compared to last winter. Service sector activity has been expanding. Manufacturing output continued to rise in all Districts except Cleveland, where it has been steady. Real estate market conditions showed little change: commercial markets generally remain soft and demand for housing continues to be strong. Agricultural conditions were mixed: demand for beef appears to be recovering from the effects of mad cow disease but exports of poultry products have been curtailed by the outbreak of avian influenza. Oil and gas production remain at high levels and iron ore processing has increased. Bank lending has been growing moderately.
Employment has been growing slowly in most Federal Reserve Districts. Wages and salaries have increased slightly, but employers report substantial increases for employee health-care costs. Most Reserve Banks reported level or modestly increasing retail prices, but information received from manufacturers and other businesses indicates that commodity prices have moved up more noticeably. The largest increases have been for steel and for lumber and other building materials. Shipping charges have also risen recently."
Real time forum log.
Click on the title above to expand this document.
These are the top 50 NASDAQ and NYSE volume leaders. Overnight, we will review this list, along with stocks found by the SwingScanner to see if there are any swing trade opportunities for tomorrow.
| MAMA |
| INTC |
| FMDAY |
| CSCO |
| MSFT |
| SIRI |
| AMAT |
| SUNW |
| ORCL |
| JDSU |
| LOOK |
| BRCD |
| LGND |
| DELL |
| CIEN |
| SEPR |
| FNSR |
| BABY |
| ATML |
| XLNX |
| NXTL |
| COST |
| YHOO |
| OSIP |
| SNDK |
| LU |
| NT |
| ELN |
| SBC |
| TWX |
| AWE |
| PCS |
| GE |
| XOM |
| PFE |
| C |
| AGRa |
| GLW |
| DIS |
| TXN |
| MOT |
| WMT |
| NOK |
| VZ |
| ABV |
| MU |
| TOY |
| EMC |
| BVF |
| NEM |
Thursday, March 4, 2004
- 7:00AM Bank of England Rate Announcement
- 7:45AM European Central Bank Rate Announcement
- 8:30AM Productivity and Costs
- 8:30AM Jobless Claims
- 8:30AM Atlanta Federal Reserve Bank President Jack Guynn speaks at an annual real estate awards dinner, in Atlanta.
- 10:00AM Factory Orders
- 11:00AM Chain Store Sales
- 11:00AM 3-Month Treasury Bill Announcement
- 11:00AM 6-Month Treasury Bill Announcement
- 12:35PM President George W. Bush holds a conversation on the U.S. economy, in Bakersfield, California.
- 3:00PM Treasury STRIPS
- 4:30PM Money Supply
For earnings highlights, please see tomorrow's WSJ Earnings Calendar.
I continue to work on refining the SwingScanner criteria so that we can get better and better results, but these are looking really good. At the moment, I'm basically looking for simple bull flags and bear flags for quick hit and run swing trades.
I will review this list overnight and pick the best one or two on each side.
Potential Bull Flags in Uptrends, Daily Chart
MOT
QCOM
FCX
BP
KSS
TXU
PCG
XLB
VLO
CFC
LLY
RRD
AUO
KEG
FRX
MRO
CNX
TIF
Potential Bear Flags in Downtrends, Daily Chart
HMA
SPW
LF