Monday, May 24, 2004
Issue Contents:
| 08:09 | Market Direction The week that was and will be. |
| 08:38 | The Day Ahead U.S. Market Calendar |
| 08:42 | The Big Picture Broad Stock Indexes |
| 08:47 | Focus on EMC TrendVue Trader Talk inspired. |
| 09:05 | Market Internals $VIX, $VXN, High/Low Statistics Analysis |
| 09:09 | Canadian Market Update Markets Closed on Victoria Day |
| 09:15 | Gaps Another One |
| 09:23 | Focus on Gold Bounce or reversal? |
| 13:22 | Focus on USDCAD Technical Update |
| 13:44 | SwingScanner Status Update |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 16:15 | TrendVue Active Trader Today's transcript. |
In our last Market Direction note we brought two key thoughts to the forefront for consideration:
- That price action had been contracting, and that a move up or down from Thursday's narrowest range day in a week (NR7) would be seen as an attempt to initiate a trend.
- That the consolidation of price over the past (now nine) days may be setting up for a next leg of downward movement as we've seen in past expansion, range contraction, expansion patterns.
We also noted that after 3 successive pushes down, the Nasdaq had managed to set higher highs, opening up the potential for a move up on Friday, which was delivered on both the Nasdaq and S&P 500 futures markets.
What wasn't delivered was the breakout from congestion that no doubt every trader and investor on the planet would like to see.
Pre-market this morning, Nasdaq and S&P500 futures are up %0.75% and 0.59% respectively. With no significant economic news releases due today, it does appear that the green line is so far on for a retest of the range highs that lie not far above Friday's range.
Traders and long term investors alike will no doubt be thinking about President Bush's address to the nation on Iraq, tonight at 8:00PM ET.
Due to a combination of factors - news on Iraq, economic news releases this week, and the fact that tight trading ranges generally end after 7 to 10 days, markets are likely to resume movement outside of the current range.
In all major markets and indicies, price has stalled just above, or just below, what should be a support level dating back to March 24. What's not known is if that level will remain or turn into new resistance across the board.
As indicated in Thursday's note, I used Friday's up day to initiate some positions, and price movement allowed for a raising of exit stops on others I held to now break-even basis.
Keeping in mind the potential for the ex/rc/ex pattern to ultimately play out, and knowing that Friday was unlikely to deliver a clearly successful push up and out of the trading range, I've kept new long side trades to token positions and remained largely in cash. Until proven otherwise, the intermediate trend remains down, so exercising caution on the long side is clearly the right approach. /Mike
Monday, May 24
Canadian markets are closed in observance of Victoria Day.
- 11:00AM 4-Week Treasury Bill Announcement
- 11:00AM 2-Year Treasury Note Announcement
- 1:00PM 3-Month Treasury Bill Auction
- 1:00PM 6-Month Treasury Bill Auction
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.
Last week, I provided analysis of the major stock indexes. Nothing much has changed. The key to the immediate future of the Dow Jones Industrial Average and the S&P 500, and to a lesser extent, the NASDAQ 100 Index, depends on what happens at the 200-day moving average.
On the daily charts, there is a small consolidation area that might still break below, while there is a big potential ABC Correction buy setup on the weekly chart. As we go to print this morning, all I can say is that over the past week, we've seen such choppy price action where, for example, the [$SPX.X] gaps open by fifty percent of it's expected trading range for the day.
Buyers and sellers are simply battling it out, thashing back and forth inside a tiny trading range on the daily chart, and the ultimate outcome is still uncertain. We lack is any convincing move back up through the March low to confirm that the buyers are winning. We also lack a decent move below the May 12 swing low on the daily chart to at least confirm that sellers are trying harder. /Teresa
In our live on-line TraderTalk chat Friday we discussed EMC as a high ADX long side setup.
Friday delivered a marginal new low off of the bear flag setup earlier that week. ADX is tending to the extreme for stocks at > 44. Please review the Knowledge Base article on ADX Price Spikes for context on this setup.
Intraday, a 2B test of bottom, a reversal pattern, has played out which lends further support for this long side idea.
Off the daily chart, buy stop limit orders should be set to 10.28;
If filled, the initial exit stop is the low of the bar that is used as a trigger, which is Friday's low at 9.97. If price clears the 10.29 level and holds, the next exit stop level will be ~ 10.10.
Those able to trade intraday can attempt to obtain price improvement using techniques discussed in the knowledge base article Initiating a Swing Trade Intraday. /Mike
It's been a while since we've looked at market internals. You can see that the short-term $VIX reversal buy signal that flashed on May 17/18 has not produced anything move upwards that can be considered anything other than a weak bounce so far.
And on this bounce, participants came out in droves to play NASDAQ stocks, and as of today, the 5-day RSI is once again under the 30 line. Note that the [$VXN] is not anywhere close to the lower Bollinger Band. Usually, I like to see an extreme move on the RSI and the Bollinger Band before I take the signal seriously (like it was when it flashed the short-term buy last week), but still, we cannot ignore a potential uphook (short-term sell signal) on the daily chart. The market really needs to thrust upwards right here and now in order to scare away the sellers. /Teresa
For background information on market internals, please visit the Market Internals, Sentiment and Psychology section of the Knolwedge Base.
Canadian markets are closed today in celebration of Victoria Day, celebrated in Canada since 1845.
The benchmark indexes, the S&P TSX60 and TSX Composite, show price trading in congestion zones similar to the US markets. Notable are the small cap and mid cap indexes which have managed to move up to resistance defined by the April lows and the question now is whether former resistance will hold here as new support. /Mike
Remember ELO (Electric Light Orchestra), that band from the 1970? They had a great song called Confusion that aptly describes this past week of "gappage".
As we get ready for the open, the S&P eminis are up 6 points in overnight trading. The average true range for the past 10 days is 14 points, so we can say that 42% of the "expected" trading range for the day is done at the open. Add this to the chop zone since the May 12 swing low, there is not much to do but wait. /Teresa
In the May 14 Focus on Gold note we put forward the case for long-side entries in the gold complex. In the past seven days the HUI gold index has risen over 5%.
In the same period, we've seen the US Dollar Index retrace. Neither the DXC index nor Gold have reversed their original trends, and the inverse correlation between the two remains high.
If we put the focus on the Gold Bugs Index, we see HUI approaching significant resistance. If HUI continues to have strength to push straight through this level, normally would expect price to move fairly directly to the 50 period exponential moving average above.
If price is not able to push through resistance directly here, then we can expect retracement of some or all of the move of the past week.
Its difficult to decide whether a swing trade should continue to be held, in the hopes of nabbing a newly emerging trend, until or unless a trend is in place.
By definition an up trend is a series of higher highs and higher lows, and $HUI has delivered only one piece of the puzzle - the higher recent highs. Likewise, the US Dollar Index remains in its up trend, since a series of lower lows and lower highs are not in evidence.
Hunters of a potential long term trend change will want to have at least break-even stops in place, and they will accept that if gold is not in the process of establishing a new up trend, they will give back some or all of the recent gains.
Short term traders have either already taken profits at the test of overhead resistance, or have at least tightened up stops considerably to capture the bulk of the move up. /Mike
It's been a while since I have had anything to say about foreign currencies. Because we are dealing with daily charts, there will be long stretches where there might not be any good risk/reward trade setups that present themselves.
In TrendVue Trader Talk, a subscriber asked if I had any comments on USDCAD at this juncture. This daily chart is unretouched from months ago when we originally plotted the potential head and shoulders bottom. Nice work! It blasted up through the neckline at around 1.34 all the way to 1.40.
This latest downswing is a pullback to just below the 20-day EMA. The 50-day moving average is in the 1.349 area on the daily chart. These are typical places for buyers to attempt to enter in an uptrend, so we can say that there is support down to 1.349ish in the big picture.
We can also entertain possibilities of an ever larger head and shoulders pattern here if we take into account price action going back to April 2003. So long as USDCAD can hold above the 1.34ish old neckline, there is room for a balanced large right shoulder to form over the next few months unless buyers come out in droves shortly due to (perhaps) higher interest rates in the U.S. /Teresa
A subscriber asked about the status of the SwingScanner Lists, and the answer is that the end of day scan criteria will be incorporated into the next build of the old TrendVue Swing Charts, which will be renamed SwingScanner upon release sometime in June.
Mike has been working hard in the background, and he has cooked up a pleasant surprise that will debut in about a week or so... /Teresa
Today's transcript.
Click on the title above to expand this document.
Today's transcript.
Click on the title above to expand this document.