Monday, August 9, 2004
Issue Contents:
| 09:21 | Index Internals Getting ready for a new week. |
| 09:33 | TrendVue Trader Talk Back to regular schedule. |
| 09:59 | Swing Trade Setups For Monday August 9 |
| 10:10 | Market Internals II TrendVue Swing Index hits new low. |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 16:15 | TrendVue Morning Trader Today's transcript. |
| 17:57 | Stock Scanner Results For Monday August 9. |
| 19:02 | After the Bell Monday wrap up and strategy for tomorrow. |
Last week delivered some fireworks in the end, and a distinct uptick in the markets fear factor. For the first time we started hearing normally bullish commentators utter the words “bear market” again. Lets have a look at various market internals:
Volatility spiked upwards, causing the Larry Connors VIX RSI indicator to move into territory where we normally start looking for a reversal. We also note that VIX is starting to trend upwards, lets park that fact for later use.
The Nasdaq Composite (COMPX) pushed below the 38% retracement of the 2003–2004 rally. TRIN did not achieve extreme levels on Friday, despite the huge selling pressure. If we look at the data which is used in the Arms Index (TRIN), and consider the formula1, this anomaly makes sense. Friday was indeed a heavily sold day, regardless of the less than epic net TRIN value delivered.
Since the test of top failure earlier this summer, declining volume continues to rise sharply – a buyers strike has developed!
NYSE Compose (NYA) has again pulled back to a 24% retracement of the 2003–2004 rally. Selling pressure was heavy on Friday; but more importantly, unlike Nasdaq, this market has been somewhat immune to a broadening of selling pressure but this appears to have changed as our cumulative advance/decline and advancing volume/declining volume measure is now showing a pending “breakout” of sorts.
Moving Forward
We can expect that some sort of “oversold” driven buying will cause a market bounce here. Aggressive traders will look for opportunities to step in, realizing they may have to close out positions quickly. On the Nasdaq in particular, until a test of a prior bottom sets up, investors have to be extremely cautious in buying bounces. Daily, weekly and monthly charts all point dow
1 Arms Index (TRIN) = (Advancing Issues / Declining Issues) / (Advancing Volume / Declining Volume)
Mike is back from his half-time holiday, and TrendVue Trader Talk will return to its standard schedule:
- 9:30 Good morning!
- 9:30 – 12:00 cover the early morning trade, look at additional swing trade candidates, review requests from members
- 12:00 – 3:00 the room holds fort during this typically quite time; your hosts are available but also working on other projects during this time.
- 3:00 – 4:00 coverage of late day trade until the closing bell.
In advance of tomorrow’s FOMC announcement we rather suspect trading to be muted unless a serious round of short covering ensues. The surprise outcome for today is probably up, yet we can be sure that the economic news delivered last week has put a big dent in the confidence of Fed watchers.
Please check into TrendVue Trader Talk this morning for today’s setups. If you are unable to join us via our Java-based chat software, visit the live transcript to follow along using only your web browser.
Friday the TrendVue Swing Index hit a new low – the ratio of stocks in up vs down swings hit 0.117:1. Additionally most stocks in our trading universe are holding below the 20, 50, and 200 day moving averages. This is a market where the selling has been unrelenting.
Of course, whenever a market hits extremes, the possibility of a surprise turn around rises as well...
Statistics for Friday August 6
| Symbols in Up Swings | 68 |
|---|---|
| Symbols in Down Swings | 581 |
| Up/Down Swing Ratio | 0.117 |
| Close > 20EMA | 14% |
| Close > 50SMA | 16% |
| Close > 200SMA | 32% |
| 20EMA > 50SMA > 200SMA (trend up) | 17% |
| 20EMA < 50SMA < 200SMA (trend down) | 46% |
After a little more development work, the TrendVue Swing Index will be available from TrendVue as a data stream which tools such as Tradestation and Neoticker can plot directly on charts. Stay tuned…
Today's transcript.
Click on the title above to expand this document.
Today's transcript.
Click on the title above to expand this document.
For Monday August 9.
Click on the title above to expand this document.
Monday saw no improvement in the TrendVue Swing Ratio, down to a new low of 0.103:1. The volatile stocks over 20 day moving average measure took a hard swing up – we can infer even before looking at individual charts that the 20 period moving average is pointing down sharply for many stocks.
Statistics for Monday August 9
| Symbols in Up Swings | 61 |
|---|---|
| Symbols in Down Swings | 588 |
| Up/Down Swing Ratio | 0.103 |
| Close > 20EMA | 49% |
| Close > 50SMA | 18% |
| Close > 200SMA | 32% |
| 20EMA > 50SMA > 200SMA (trend up) | 10% |
| 20EMA < 50SMA < 200SMA (trend down) | 47% |
NYA, INX and INDU delivered both inside days and narrow range seven (narrowest trading range in the past seven) bars at the low end of Friday’s expanded trading range.
Narrow ranges are a sure sign of pent up tension brought about by uncertainty. The good news for swing traders is range expansion follows range contraction. The question du jour is whether these inside days will end up as “pauses” in the dominant down trend, or act as potential reversal points off a “Three Inside Up” setup1.
Its unlikely that the market will give us a break tomorrow and move with a minimum of fuss in one direction, as major market-moving news is next up on the economic front.
On Tuesday at 2:15 pm ET the latest pronouncement on interest rate policy will be made by the Federal Open Market Committee.
We have to conclude that the jobs report last week caught quite a few market participants off guard: until this point, the Federal Reserve’s next actions seemed entirely predictable, but now uncertainty has again crept into the psyche of the market.
Important: It is our practice to avoid initiating positions immediately ahead of all key Federal Reserve announcements, particularly in highly leveraged instruments such as options or index futures.
History has shown that bond and stock markets frequently react in large and unpredictable ways before and after the FOMC announcement. It is not unusual to see the S&P 500 and Nasdaq 100 futures move 1, 2, or even 3 percent on either side of current market prices in mere seconds. The spectacle is predictable, humorous, fascinating, and gruesome to watch—from the sidelines!
The wild price swings of course stun the entire market like a giant Taser, since stops on both sides of price will have been taken out. While it seems reasonable to conclude that whatever move emerges from the chaos will become the dominant direction for a period of time, we instead have frequently observed that the first sustained move following the announcement in fact rarely is in the direction the market eventually settles upon.
In short: it is not worth the risk to attempt to pre-guess the market’s reaction to any FOMC decision.
Our strategy for the morning then will be to focus on less-leveraged exploit any reasonable opportunity that presents itself at the open, and resolve to take profits unless a substantial profit cushion has been built up by noon, eastern time.
1 The 3 Inside Up pattern: a tall down bar followed by either an inside bar or a harami candle the second day. Traders go long on a break of the inside bar’s high.