Tuesday, May 11, 2004
Issue Contents:
| 09:09 | Before the Bell Good Morning. |
| 09:39 | Administrative Note For subscribers only. |
| 13:20 | Focus on Gold Bounce watch day 2. |
| 16:16 | TrendVue Active Trader Today's transcript. |
| 16:16 | TrendVue Trader Talk Today's transcript. |
Monday closed the day with major market indexes at their worst levels of 2004. Beyond raw price, this internal view of the NYSE tells the whole story:
After the longest period of high levels of new highs in many years - not surprising coming off the dramatic sell off of the first bear market of this century, the market very quickly reversed and new lows on the NYSE expanded dramatically, reaching levels now associated with at least intermediate bottoming action.
We also saw price neatly set up on all the major US indexes for a test of the March swing lows:
In Canada, the test of the large cap and broad indexes is going to be of the April lows as the additional weakness in commodity-based stocks has accentuated selling in that marketplace:
Futures before the bell have price opening at or slightly above Mondays highs (highlighted in blue):
Ostensibly futures are trading up as traders look to the earnings report from CSCO after the bell to add confidence to investors and bring buying back into the market place. This expectation appears to be based on past experience, where at the pits of investor confidence, when most companies were not reporting business expansion, CSCO came out with a very strong outlook on its own business and its view of the world economy. Markets rallied strongly after that event.
We have to wonder if history will repeat itself exactly here, given that companies have been reporting strong earnings growth for a number of quarters, and this quarter's earnings season in particular has delivered particularly strong news and upward revision of business forecasts for a significant percentage of the S&P500.
Still, traders and investors will do what they will do and price will act accordingly. At a test of a significant swing low, we have to be prepared that price may move up; we also have to be prepared for the day after as well, in case investors find little to cheer about in CSCO news after the bell. /Mike
Yesterday we were informed by our credit card payment transaction service provider. InternetSecure, that a number of duplicate or triplicate transactions were put through on subscriber credit cards who were due to renew. If you received multiple confirmations of renewal recently, your account has already been credited for this error directly by our payment services provider.
If you have any questions or spot any abnormal charges, please do not hesitate in contacting me directly at websupport@trendvue.com - thank you for your patience. /Mike
Please be sure to read the comments at the end of this piece.
As we've been preaching for some time, Gold has been the market to stay away from, or be short. Following the 2B test of top which played out on April 1 and 2, Gold and Gold issues have sold off with surprising velocity, culminating in what appears to be an exhaustion spike down.
The commodity itself has managed a pause and so far this trading session a minor up bar, on declining volume. This pattern is so far consistant with a stealth bear flag setting up, but is also the same pattern for a 3 inside up long trade at a test of a swing low.
This presents an either/or situation for swing traders. We can look for candidates to go long here, on the expectation that at least 2-4 bars will available on the bounce.
On the other hand, Gold has been quite directional, failed spectacularly - not once but twice - at overhead resistance under the range marked out. Fear must be at extremes here, although given the extreme sentiment which surrounds gold, almost all of the time, we have to wonder if fear is that useful in setting a bottom.
Lets look around at currencies in relation to the USD to see if we can clear up the picture.
GBPUSD is testing a swing low:
EURUSD is trading within a triangle, hovering just above a test of the April lows.
The US Dollar Index continues to show the USD trending upwards and the ADX directional movement indicator is rising, also indicating a trend is in place. Price in DXC is also at a test of the prior swing high.
The picture here then is one of multiple currency tests lined up to determine if the overall uptrend in the USD remains intact. Domestic and currency markets are reacting strongly to every important piece of economic data that comes out - this week, Retail Sales (May 13) and the Consumer Price Index (May 14) are likely to drive these markets.
We have therefore ample reason to retain a bias toward caution here if considering establishing new long side positions.
Lets review some of the top traders from the HUI index.
Note: last bar prices on these charts are showing intraday values as of today, Tuesday May 11. Any setups described will be based on the May 10 bar unless noted.
NEM - I chose this chart as it is one of the most actively traded stocks in the HUI Gold Bugs Index. NEM's chart will be similar to many today - a high ADX value near 40 or greater, an expanded range bar pushing down through the prior swing low, and a reversal of sorts on Monday. Many of the comments made regarding NEM will directly translate to other Gold stocks.
NEM drew a piercing line however paused at overhead resistance. This is a high ADX long setup (please refer to the linked document which discusses high ADX for a short setup - simply invert the discussion in your mind).
All the Gold charts are going to show us much the same story, so we'll go into detail for NEM only and then present snapshots of a few other high volume trading gold issues.
What ADX is telling us here is that price is getting stretched, but that does not mean price can not stretch further on the downside.
The long entry is set up on a break of May 10 high of 36.95. My practice is to set an alert at that price and then look for an intraday entry following. Refer to Initiating a Swing Trade Intraday.
Those who are unable to trade during market hours are forced to employ buy stop limit orders - generally I will set a stop 1 or 2 cents above the price target with a limit of 1 or 2 cents. If filled, I then place my stop loss orders at the earliest possible opportunity.
Given the expanded range of the daily bars, we should consider adopting some sort of % based stop loss, particularly if we are unable to monitor the trade on an intraday basis.
CDE - similar setup to NEM and I've included an intraday chart to show the triangle in progress.
BGO:TSX (also trades as BGO on AMEX) - same high ADX setup at a test of a prior swing low.
ABX - Similar bar setup, however do note that ADX is not stretched in this chart.
For comparison sake I looked at ABX on the TSX and note that price is trading somewhat stronger, above the Jan swing lows. It would appear that some additional buying support for this large cap Canadian index component has helped to support price.
And now the dark side. What, they can go down more?
I've presented all of these charts as potential long side entries. With ADX at extreme levels in many names, the expectation of most will be that these stocks should enjoy a bounce for a bit.
We should remain objective and realize that any test of a swing low can fail. Our choices are a) participate on the long side in these names if price rises to our triggers/alerts or b) stalk these as potential shorts or c) do both.
There is only one time when going either way makes sense, and that is at or near tests of bottoms and tops. With this in mind, we'll keep our eyes glued to the Gold contract itself, to foreign exchange markets, and to the individual stocks to see if the trigger any long side ideas.
Following Tuedays's trading session we may see a number of these
stocks make either an up bar (the first up bar in a number of days) or
complete an inside bar. In either case, a short side setup here, at a
test of low, is to lurk underneath Tuesday's low with an alert to prepare us to go short if triggered. I'll update this picture at the close of trading today. /Mike
Today's transcript.
Click on the title above to expand this document.
Today's transcript.
Click on the title above to expand this document.