Tuesday, April 20, 2004
Issue Contents:
| 08:48 | The Day Ahead U.S. Market Calendar |
| 08:57 | Swing Trade Update Update Open Positions |
| 12:07 | Note to Subscribers TrendVue Trader Talk |
| 12:55 | Focus on Broad Stock Indexes Technical Update |
| 13:21 | Broad Stock Indexes Continued |
| 13:48 | Broad Stock Indexes Continued |
| 16:05 | Why Intraday Matters Before and After |
| 16:16 | TrendVue Active Trader Today's transcript. |
| 16:16 | TrendVue Trader Talk Today's transcript. |
| 16:45 | Broad Stock Indexes Continued |
| 17:02 | The Harami Spike TASR the Impaler |
| 18:04 | Economic Data Summary of Today's Releases |
| 18:06 | Stock Watch Lists Most Actives and Volume Surges |
| 21:29 | The Sector Investor PHLX Housing Sector |
| 21:33 | Focus on Commodities Gold, silver, copper, platinum, crude oil. |
| 21:58 | SwingScanner Lists Swing Trade Candidates for Wednesday |
Tuesday, April 20
- 7:45AM ICSC-UBS Store Sales
- 8:55AM Redbook
- 9:00AM Cleveland Federal Reserve Bank President Sandra Pianalto takes part in panel discussion at a conference for women in business, in Cleveland, Ohio.
- 1:00PM 4-Week Treasury Bill Auction
- 2:30PM FOMC Chairman Greenspan to testify before the Senate Banking Committee
For earnings highlights, please see today's WSJ Earnings Calendar. For a list of speeches, congressional testimony, Federal Open Market Committee material, and statistical releases, please visit the What's Next page of The Federal Reserve Board website.
Yesterday, we examined the bear flags found on the daily charts of [AEP], [CTX] and [ANF], and how they set up swing trades on the short side. Let's update the charts.
The dotted yellow line by the arrow is the downside target, a test of the swing low where the bear flag began. Since the bear flag was three bars, our rule of thumb is that if the same speed is maintained on the way down, the downside target should be reached in about 50% of the time. In this case, it means that we would expect the downside target to be reached in less than two days.
The situation is the same here, and so the question that is before swing traders today is if the downside target can be reached. If not, because this is a test of bottom, there is always the possibility that a higher swing low will be formed on this test. Traders need to protect themselves against this possible outcome by lowering their stop losses. There are two places to put the stop loss. The classic spot would be just under yesterday's high; however, if a trade is well in the money, and this setup is supposed to hit target or it reverses on the test, then there is a an obligation to tighten the stop more if possible, to breakeven or better.
Same here for [ANF].
Please note that while the real-time room was originally intended to be a forum for discussion and technical support, Mike has been very active and is posting volumes of information in real time.
If you would like to join in the discussion, please log on and enter using the Real-Time Forum link. The day's transcript is posted to the newsletter at 4:15PM Eastern.
/Teresa
It's been a while since we took a good look at the broad stock indexes, the Dow Industrials [$INDU], the S&P 500 [$SPX], and the NASDAQ 100 [$NDX].
Usually, the first chart I look at is one with price bars and volume. I use volume from [DIA], [SPY] and [QQQ] since I think that is much more accurate than whatever the exchanges dispense for volume for the indexes.
This is the daily chart, complete with the lines as is, where is, when we last visited. At this point, we can do a big cleanup, as these lines have served their purpose.
Based on volume correlation, i.e. shrinking volume can help identify potential areas of contraction, I think there is no problem in drawing a line that connects all the lower swing highs here, particularly for the [$INDU] and [$SPX].
The potential lower edge is more problematic, and at this point, I can basically make a projection using two previous swing lows to arrive at what might end up to be the lower edge, for the [$INDU] and [$SPX].
Next, we squeeze the charts up to see more...
If [$NDX] was a problem, then squeezing the chart together solves it. We can draw a big thick line across a bunch of swing lows and mark out a potential support/neckline area.
Now, we move to charts with some popular indicators on them...
This chart is unchanged since April 13, when we last looked at potential scenarios. At the time, we noted that the 50-day MA and 20-day EMA were just below the price, and this was going to be a spot where some buyers might show up. We were interested in a potential stealth bull flag setup if it didn't exceed four bars, and so far, the pullback went deeper than we would accept for a buy on a swing trade on the buy side.
Let's clean up the chart and take a look at why...
Here's a good example of why it helps to look at intraday charts, even if you are a swing trader. This is excerpted from the today's transcript of our real-time coaching service:
11:58:05 Teresa: OK, we've made it to lunchtime...
11:58:31 Teresa: Let's look at the 45M charts again and see what the question of this afternoon is going to be...
12:00:33 Teresa: The 20EMA45 has got to be the line in the sand here across the board, with the DJ and ES being in the most precarious position.
12:01:31 Teresa: If we squeeze together the bars on the 45M ES, we get the same sort of pattern as the DJ.
12:14:13 Teresa: On this 5M ES chart, we can call this a bear flag, although the bounce is not very big...
12:15:01 Teresa: And the prize would be a potential freefall out of the big wedge seen on the 45M chart. It's a low probability trade, so the approach would be that the trader does SMALL size, and holds on as long as possible should the break come to pass.
And at the end of the day, the downside targets of the rising wedges -- the base -- are all hit, and that's that. Mission is accomplished.
Today's transcript.
Click on the title above to expand this document.
Today's transcript.
Click on the title above to expand this document.
We add the lines and now we have a pretty good picture of what is happening: NOTHING.
The [$INDU], [$SPX] and [$NDX] daily charts are not up, not down; they're sideways. From the lines drawn, we know price action is trapped inside a congestion pattern, plus whenever we see moving averages such as the 20-day EMA and the 50-day MA interweaving -- because we know the math behind how a moving average works -- we know that the price is essentially trendless. This is the part where traders using moving average crossover systems call "whipsaw". No kidding.
For the rest of us, it means that we can expect price action to travel between the upper and lower edges of the congestion pattern, and so there are no "with the trend" sort of swing trades available. We hit and run, often on an intraday basis using higher leverage instruments such as the e-mini S&P, NASDAQ or Dow futures.
Next, let's move out in timeframe and take a look at the weekly chart a little later...
In our Knowledge Base, there is an article on market sentiment called Going to Extremes. Here's another good example of extreme bullish sentiment.
Let's set the stage for this. In February, we went over [TASR] as it began it's big parabolic spike action. We noted the tiny float, and price, as you know, is simply a function of supply and demand.
Next, the big split. 11-Feb-04 [3:1] Contrary to popular belief, splits eventually weaken a stock, because it increases the supply of paper.
As of today's date, this is what Yahoo Finance reports the float to be, although I don't see how that works since it was a 3:1 split. The float should be much higher, but we'll overlook this for now.
Weekly chart sports an ADX reading of 85 - meets the Extreme ADX Reversal criteria.
Going into this morning's trading, there was a *huge* two-day harami spike pattern, two-thirds of a reversal pattern. Yesterday's long-legged doji (supreme indecision) was made on the biggest volume in a couple of months, so we know for sure that it was gyrating psychotically. The 5-day average true range was $15.03, meaning that if you're wrong on a swing trade, expect to lose at least $15.00 if you hold overnight.
Last week, we started work on interest rates, and you this is an excerpt from the backgrounder on the nature of blowoffs:
(05:13 AM) Teresa_Lo: Simply because there is no need to chase.
(05:13 AM) Teresa_Lo: Because the market is diabolical.
(05:15 AM) Teresa_Lo: Obviously we're in the middle of a big blowoff in bonds.
(05:15 AM) Teresa_Lo: Obviously there is money to be made.
(05:15 AM) Teresa_Lo: But not so obvious is the risk.
(05:16 AM) Teresa_Lo: As any market goes parabolic, the price bars increase, and so for the same exposure, the absolute risk to capital is larger.
This morning, Mike Watkins reported that our favorite self-proclaimed market guru (SPMG) had posted the following exchange on a popular message board:
4/19/2004 8:01:15 AM SPMG: Big TV blurb on TASR last night buy it and hold it long term...
4/20/2004 8:33:00 AM SPMG: Nice morning doji star NAZ daily chart...if alan g make snice today and tomorrow we be going a lot higher...man i am loaded up long...
4/19/2004 8:49:47 AM SPMG: picked it up at 113.50 pre market..and will hold all the way now...it's a mjust own stock even at these levels...
At this point, someone from the peanut gallery joined in and began a duel of posts...
4/20/2004 9:48:55 AM PEANUT: After buying TASR at $113.50 for the longer term, what do you do now?
4/20/2004 9:51:02 AM SPMG: Hold it for my IRA as announced and add to it after the split..it has major world wide bullish implications...4/20/2004 9:52:55 AM PEANUT: Good luck (name deleted to protect the guilty), I personally think this stock will crash going forward. Careful
4/20/2004 9:54:00 AM SPMG: i want to acummulate it for the year and sit on it for the foraeable future..this thing has only just begun to run...
4/20/2004 9:58:07 AM PEANUT: Sorry buddy but I think you're way off on this one and will regret holding longer term.
4/20/2004 10:00:33 AM SPMG: thats what makes a market Peanut...
4/20/2004 12:26:44 PM PEANUT: No, thats what makes people broke. Its now down 22 points from your buy. Tell me you've changed your mind and didn't sit on it as it dropped 22 points from where you bought.
4/20/2004 1:41:44 PM SPMG: bear i am not selling it..i am accumulating it for the long term...stop worrying about me and my money...
4/20/2004 3:09:44 PM PEANUT: Not worried except for thos poor souls who followed you into it at $113.00. Smart traders DON'T keep adding to losing positions. I was calling for a TASR crash soon so maybe this is the start. Better luck to you.
4/20/2004 3:19:50 PM SPMG: PEANUT IF THEY TRADE WITH STOPS THEY'RE FINE...4/20/2004 3:24:30 PM PEANUT: Agree, did you have a stop in place?
4/20/2004 3:29:13 PM SPMG: actually i did not as i am holding it my IRA..of course never figured it would get hit quite this hard..but will wait till after the split and then add more later...
By the end of the day, [TASR] looked quite the sorry chart while we saw how every single ingredient of the Mamis sentiment cycle was incorporated into this single exchange between SPMG and the Peanut. You can see why we don't think it's a good idea to chase. As a friend of mine used to say, "Always leave some money on the table for those who really want it bad."
(05:17 AM) Teresa_Lo: Because when the feeding frenzy ends, the house of cards collapse.
(05:18 AM) Teresa_Lo: Justin Mamis really said it best in his book, The Nature of Risk.
(05:18 AM) Teresa_Lo: Any given position is a function of price and information risk.
(05:18 AM) Teresa_Lo: When price is low, there is usually no information.
(05:19 AM) Teresa_Lo: When price is high, you've paid to know all there is, but everyone else knows it too.
(05:19 AM) Teresa_Lo: In either case, you have to know when to get off.
ICSC-UBS Store Sales +1.0%
(Econoday.com) - Week-to-week chain-store sales rose a firm 1.0 percent in the April 17 week but, due to Easter shifts, was less firm year-on-year, rising 5.9 percent.
The International Council of Shopping Centers/UBS report said sales are strong but still expects sales for the month of April to moderate from March's 7 percent pace.
Redbook +4.8%
(Econoday.com) - Chain-store sales were soft in the April 17 week due in part to store closings for Easter, according to Redbook.
Year-on-year sales were up 4.8 percent, down from last week's year-on-year pace of 5.4 percent.
The last two weeks together, which may offer a less distorted view of the month, are also weak as month-to-date sales are down 2.2 percent compared with March.
The Redbook's results confirm those from ICSC-UBS, with both now pointing, calendar distortions aside, to a weakening pace of consumer spending. But softer consumer spending is not a surprise given strong spending in both March and February.
4-Week Bill Treasury Rate +0.910%
(Econoday.com) - Short-term interest rates may be on the rise but not quite yet at the very front end.
The high rate for Tuesday's 4-week bill auction came in at 0.910 percent, only 1.5 basis points higher than last week and still 4 basis points below the March 30 rate when the March jobs report was still unknown!
The bid-to-cover was strong at 2.91 vs. 2.99 last week.
The results reflect no expectation that the Federal Reserve will raise interest rates over the next few weeks and contrast with higher yields and lower coverage in Monday's 3-month and 6-month auctions, maturities that may be at risk of a Fed hike.
Here are the most active list and the volume surge list. We will post the SwingScanner List when it becomes available after 7:30PM Eastern.
In case you missed this report from March, this is the link.
In case you missed our comments, this is the link.
This list of swing trade candidates was edited by Teresa, based on automated end of day stock scans generated by our SwingScanner software.
Buy Side Candidates
Retracement in Uptrend - Simple Bull Flag:
- JNJ
Retracement in Uptrend - Modified Connors 1-2-3-4:
- No symbols.
Test of Bottom - Modified StreetSmarts Turtle Test of 20-day Low:
- No symbols.
Potential Spike Bottom - Extreme ADX Reversal:
- HOTT
Sell Short Candidates
Retracement in Downtrend - Simple Bear Flag:
- DIS - Stealth bear flag.
- SNDK
- SEBL
- CTXS - Stealth bear flag.
- FCS - Stealth bear flag.
- AMX - Same setup as ANF from Monday.
- HUM - Decent bear flag, but may be late in the game.
Retracement in Downtrend - Modified Connors 1-2-3-4:
- DUK
Test of Top - Modified StreetSmarts Turtle Test of 20-day High:
- No symbols.
Potential Spike Top - Extreme ADX Reversal:
- AVP - already triggered off a rising wedge, but there might be intraday possibilities.
For background information on our approach to swing trading, please visit the Swing Trading Principles section in the Knowledge Base.