Monday, May 10, 2004
Issue Contents:
| 07:47 | The Day Ahead U.S. Market Calendar |
| 08:01 | Today's Strategy The Break |
| 08:01 | Focus on USD Tests ahead. |
| 09:03 | Focus on Gold Land Ho? |
| 16:16 | TrendVue Active Trader Today's transcript. |
| 16:16 | TrendVue Trader Talk Today's transcript. |
Monday, May 10
- 11:00AM 4-Week Treasury Bill Announcement
- 12:30PM Treasury Secretary John Snow delivers remarks to the Independent Community Bankers of American in Washington.
- 1:00PM 3-Month Treasury Bill Auction
- 1:00PM 6-Month Treasury Bill Auction
- 1:00PM Federal Reserve Governor Mark Olson delivers a speech to the Strategic Research Institute Conference in New York on the bank charter.
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.
The big headline at WSJ.com this morning is:
Asia-Pacific stocks tumbled on mounting expectations for a U.S. interest-rate increase. Tokyo shares plunged 4.8% and the yen hit an eight-month low against the dollar.
Isn't this a great case of be careful what you wish for? The economy is finally better, jobs are coming back, and even the Dollar is up, but guess what? Market participants are always looking down the road, at the glass half-empty. They always want to know what's next.
When we first saw price erosion a few months ago while investors piled into the stock bubble du jour (remember TASR, etc), we knew that the signs of trouble were there and showed you why with a chart; however, regular people tend to ignore things like this, and only pay attention when price takes a dramatic fall before they ask "What happened"?
At this point, even the regular guy on the street will be able to tell us why the market is going down some more by reciting headlines they read in the newspaper, so we know that they now have the reason to sell. The only question is will the sellers make a trend on the downside?
Over the last week, we've seen the broad stock indices reach the lower edge of their respective congestion zones, and this week, we'll see if this is going to head down to the March lows. We've seen a number of tech stocks move straight down without a bounce on the daily charts in "waterfall style", so perhaps we are near some sort of very short term panic selling climax.
That said, we know that the mental paradigm of the market has now shifted to looking for signs of inflation, so every statistic will be viewed from that perspective, and this mean that participants will fear the downside much more than fear missing the upside for a while. I think we call this downside bias.
I'm on the road and will be back at approximately 11AM Eastern.
The USD today has extended its appreciation run against a number of world currencies, bringing it closer to tests on several.
Against the Yen, USD has pushed through the March swing high and filled a gap created in September 2003. Its interesting to note that the strong run of the USD against JPY started as the Bank of Japan signaled that it would end its campaign to weaken the Yen against the Dollar.
Price remains within easy range of the March swing high so we'll want to keep an eye out for a possible failed test here.
The Euro is poised to retest the April swing low:
The Pound is likewise poised to retest the April swing low. GBPUSD having broken the neckline of a head and shoulders pattern, will likely accelerate its downward move (GBPUSD down = strengthening USD) if this test does not hold - a potential target using the measured move from the head and shoulders pattern is illustrated.
USDCAD is trending upwards (USDCAD up = strengthening USD) after leaving the neckline of an inverse head and shoulders pattern.
Finally, the US$ Index is testing a the April swing high.
With several world currencies at or near tests of prior swing lows, we can expect that news this week will play an important role in determining where the USD heads in relation to other world currencies.
As we can see on the weekly US$ Index chart, the greenback has had a multi-year decline in value - in the big picture its too early to call the US$ a new bull market. It is however setting up a pattern of higher highs and higher lows on the weekly chart, so until an important test fails and reverses this trend, we can simply acknowledge that the trend is up for now.
That up trend is going to have a continuing predictable dampening effect on many commodities, including Gold, which we'll talk about later today. /Mike
Land Ho - a potential area of support lies ahead, but will it be quicksand?
Gold clearly is moving with a strong inverse correlation to the USD. The gold contract has gapped down and made a marginal new low against the April swing low.
As noted in our focus on the USD this morning, the greenback is
having another strong morning yet in several currencies, important
tests lie ahead. With both Gold and the Dollar Index at important tests, clearly both markets will be viewing all economic news with a particularly strong magnifying glass.
Gold bulls certainly have had the wind knocked out of them. Every day I am forwarded article after article showing various newsletter writers calling for Gold at 500 or some such number, in complete denial of the trend change which, until proven otherwise, is in progress.
From Jim Sinclair's MineSet: "Here is my pledge. If I am wrong and gold is not in the low territory and isn't preparing to take out $430.30 on the upside in a move toward $480, I will close this web site down."
One of the problems with carrying "fundamental" analysis too far is that one can lose a lot of money waiting for a thesis to be proven correct, or incorrect.
As unemotional investors and traders, we use price charts to tell us what is happening to investor sentiment now, not to judge what various players in the market may be doing nor ascribe sinister plots to price movement. Our individual actions can not move markets, but the moving market can certainly affect us in a positive or negative fashion.
After identyfing the failed 2B Test of Top on April 2, we've seen gold and and fail to hold the range bottom - this failure at both the range high and low is by definition a change in trend. The trend is your friend, until it ends or bends, we always say.
Last summer we identified the triangle on the weekly chart of the gold contract, and sure enough, after resolving upwards, Gold headed almost straight to the target of the measured move over the following 16 weeks.
Price has unwound almost all of that rise in only 6 weeks.
So here is the bottom line: the uppermost range has failed to hold; price is falling much faster than it rose. Both of these alone are indication of a change of trend in play.
Can the price trend change again and head up? Absolutely it may. Will it? Who knows. Will we detect that shift if it occurs? Yes.
Our job is not to guess where a market as sentiment driven as gold may or may not go - to profit from this market its enough to know what direction the trend is in now.
Today's transcript.
Click on the title above to expand this document.
Today's transcript.
Click on the title above to expand this document.