Tuesday, August 17, 2004
Issue Contents:
| 09:02 | The Day Ahead Economic releases and news. |
| 09:17 | Strategy Hanging tight. |
| 09:32 | Swing Trade Setups A dearth of clean opportunities. |
| 15:33 | Intraday Update Nasdaq and S&P 500, Oil |
| 15:51 | Security Notes Phishing, security update conundrum |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 18:26 | Stock Scanner Results Tuesday August 17 data. |
Good morning. Market watchers were treated this morning with a comparatively tame Consumer Price Index number, and a strong rebound in Housing Starts.1 While the US Dollar is hovering near recent lows against other major currencies2, we see some potential for the USD to make a stand here at the low end of trading ranges in various currencies and will write more on this later in the day.
US Market Calendar
- 7:45 ICSC-UBS Store Sales
- 8:30 Consumer Price Index
- 8:30 Housing Starts
- 8:55 Redbook
- 9:15 Industrial Production
- 1:00 4-Week Bill Auction
Canadian Market Calendar
- None scheduled
Earnings and the Federal Reserve
For earnings highlights, please see today's WSJ Earnings Calendar.
For a list of upcoming speeches, congressional testimony, Federal Open Market Committee material, and statistical releases, please visit the What's Next page of The Federal Reserve Board website. Recently released Federal Reserve Board material, including market moving FOMC decisions and speeches by members, will be found on their What's New page.
1 Consumer Prices Dip 0.1 Percent in July (AP) Link
2 U.S. July Housing Starts Rise 8.3% to 1.978 Million Annual Rate (BLOOMBERG) – Builders broke ground on homes at a 1.978 million-unit annual pace last month, up 8.3 percent from a revised 1.826 million rate in June, the Commerce Department said in Washington. Link
A couple of quick notes on strategy for today.
Statistics for Monday August 16
Note: Statistics are compiled using our symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 434 |
|---|---|
| Symbols in Down Swings | 213 |
| Up/Down Swing Ratio | 2.03 : 1 |
| Advancers | 91% |
| Decliners | 8% |
| Unchanged | 1% |
| Close > 20EMA | 92% |
| Close > 50SMA | 25% |
| Close > 200SMA | 34% |
| 20EMA > 50SMA > 200SMA (trend up) | 12% |
| 20EMA < 50SMA < 200SMA (trend down) | 49% |
Price is testing resistance on INX(S&P 500), and the Nasdaq continues to lag even though it delivered a stronger percentage performance. It simply has more room to make up, and as a result, may offer the best opportunities. One strategy is to employ Exchange Traded Funds such as QQQ or other tech-specific ETFs to gain exposure without having to be right on with stock selection.
The NYSE saw a massive surge in buying, the sort of surge we associate with the start of a move up and out of congestion. As noted in the discussion forum yesterday, for now, all signs point up.
Yesterday in TrendVue Trader Talk we looked at what the pre-conditions would be for the “average” follow on day after a big range up day:
15:32:37 Mike: Don’t know how much more price can move today, if one was looking to establish a position the best risk-reward play is probably to wait… wait until tomorrow. Lets assume the market wants to bounce for more than just today, here’s what is “likely” to transpire tomorrow:
15:34:31 Mike: 1) some minor pressure in futures comes in overnight based on some news. Price opens marginally down in the morning, typically near the bottom end of the top third of today’s daily range. If we are buying an index ETF we’ll need to look for an intraday entry point somewhere down there. If we are hunting a retracement in a specific stock obviously we’ll need to look at those charts individually.
15:35:26 Mike: 2) price more or less grinds up and sideways, makes a marginal new high, a little higher than todays. Closes marginally stronger than today. 3) market continues upward on the following day (wednesday).
15:36:55 Mike: Knowing this pattern happens frequently, we’ll need to be ready in the morning, for the opening lows and also on guard for any retest of those lows during the day. There will be the least risky entry point for adding or entering.
In short, if continuation is on the minds of most market participants, we are looking for a smaller range than yesterday, in the same direction, closing stronger than weaker.
As is often the case at potential major market turns, there is a real lack of potential opportunities today in specific names. As the market statistics show, a real turnaround in the Swing Ratio means that most stocks have initiated new upswings, and over 91% advancers gives us a clear indication that breadth was on the side of long traders on Monday.
Given that we know all our triggering mechanisms were hit yesterday, across most of the stocks we follow, to get additional long exposure we’ll have to start looking intraday at stocks we wish to hold. Please join us in TrendVue Trader Talk or follow along using the live transcript.
A few stocks stand out as potential shorts but if breadth continues to be weighted heavily to the long side, its unlikely that any of them will trigger today – rather we will need to look for a multi-day pattern such as bear flags to develop in weaker names. Once the rising tide starts to slack, we’ll find quite a few stocks to catch quick short moves from.
Short ideas to stalk
AMAT
ADTN, two inside days in a row – can probably be traded in both directions but the caution here is this stock does look like it could continue down once the major tide subsides.
NBR
Question: Why do you use futures for intraday updates rather than the cash indexes? Do they lead the other markets?
Answer: While sometimes futures will lead the cash markets – particularly when major news events occur during regular trading hours – the principle reason is that we trade S&P 500, Nasdaq and bond futures for our regular income purposes, and after trading a market day in, day out, for years, you get a feel for them. As well, the chart bars and volume data give us better patterns for analysis than the cash indexes do.
So far, price has held above former resistance, which is now new support. As discussed on Monday and reiterested in today’s strategy note, its typical for markets to tread water a little, with an upward bias, the day after a big up day near a reversal. This about sums up today’s price action at this point.
Stops: Swing traders should consider moving stops up to break even (at least) at this point since if new support fails, we’ve no guarantee that price will reclaim these levels.
Investors with a longer term horizon may elect to leave stops at the initial protective value, but must recognize that they are chosing to accept a little more risk in doing so.
Other items of note: Oil made an impressive reversal today, after continuing yesterday’s sharp sell off, price did an about face, made a new record high, and closed strongly. Reminder: Wednesday morning traders of all markets will be watching for the Petroleum Inventory Report (US), released each Wednesday morning.
Some minor softening of stock markets was observed even as the Crude contract rebounded today, so perhaps this market has not completely shaken off its co-dependency on oil prices after all.
Phishing
Under the heading of “be aware or be a victim”, we should all be aware of “Phishing”.
What is Phishing? Phishing attacks use ‘spoofed’ e-mails and fraudulent websites designed to fool recipients into divulging personal financial data such as credit card numbers, account usernames and passwords, social security numbers, etc. By hijacking the trusted brands of well-known banks, online retailers and credit card companies, phishers are able to convince up to 5% of recipients to respond to them. Futher information >
Lately we’ve been receiving messages disguised as appeals from EBay, AOL and others claiming to require updated member information. All of them were Phishing attempts. Sadly the only defence is to remain highly skeptical of any unplanned, un-asked for, contact by individuals or organizations.
The Update Conundrum
Buy a new computer? Forced to reinstall Windows, for whatever reason? The first task after rebooting your new Windows operating system must be to apply all available “Critical Updates” from Microsoft.
How? Find and choose the Windows Update icon in your Start Menu. Allow Microsoft’s software to install and scan your computer for required updates. An unpatched version of Windows 2000 or Windows XP will have a dozen or two updates to apply, most of them absolutely critical for your system’s security.
The problem is that there are so many attackers, and methods in use, out there on the Internet that your chances of finishing your update before you are attacked are approaching zero.
Survival Time: The survivaltime is calculated as the average time between reports for an average target IP address. If you are assuming that most of these reports are generated by worms that attempt to propagate, an unpatched system would be infected by such a probe. The main issue here is of course that the time to download critical patches will exceed this survival time. Further information >
The SANS Institute publishes a paper Windows XP: Surviving the First Day (PDF) which you may find helpful. In addition, I highly recommend that all users employ some sort of hardware-level network protection. It turns out that a simple multi-port router – available from Linksys and others for less than 100$ – will provide you with great, but not foolproof, protection. What’s more your survivaltime will be more than sufficient to get your new computer or operating system installation fully functional.
Once updated, be sure to have Windows Update automatically check your system and remind you to apply new patches as they are available. Its very important to stay current.
Today's transcript.
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Tuesday August 17 data.
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