Wednesday, September 15, 2004
Issue Contents:
| 08:50 | The Day Ahead Economic releases and news. |
| 09:29 | Swing Trade Setups Featured charts from Tuesday's scan. |
| 11:01 | Market Outlook Tightening stops. Weathering storms. |
| 11:24 | Oil and Water Ivan and oil production do not mix. |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 16:30 | Stock Scanner Results Wednesday September 15 swing scanner data - TrendVue Swing Ratio: 0.88 : 1 |
Good morning. On this, the 259th day of 2004 we see that business inventories across the spectrum rose for the 11th straight month1. Of course the concern now is whether the consumer remains up to the task of buying all these products, and all strong reports raise, even if imperceptibly so, the risk of more aggressive Federal Reserve tightening in the months to come.
Ahead of the Weekly Petroleum Institute Inventories Report this morning (10:30 am), news leaking out of the OPEC meeting[2] in Vienna has so far caused little ripple in crude oil futures. The lack of reaction may in part be due to hurricane Ivan, which has already caused producers to shut down a significant percentage of US oil production—over 25% of US oil supplies come from Gulf Coast offshore fields, and on-shore refineries may also be impacted3. As well, there is much debate over how much additional production capacity some OPEC members can bring on-line quickly.
US Market Calendar
- 5 and 10 Year Note Settlement
- Bank Reserve Settlement
- 7:00 am: MBA Purchase Applications
- 8:30 am: Business Inventories1
- 8:30 am: NY Empire State Index
- 9:15 am: Industrial Production
- 10:30 am: Weekly Petroleum Institute Inventories Report
Canadian Market Calendar
- 8:30 am: Manufacturing Shipments & Orders – July
- 8:30 am: Existing Home Sales – August
- 2-year bond auction
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 U.S. Business Inventories Rose 0.9% in July; Sales Rose 0.6%
2 OPEC Ponders Modest Rise in Oil Quotas
3 Crude Oil Rises as Hurricane Cuts Output, May Flood Refineries
Featured setups from Tuesday September 14 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
While markets generally moved higher yesterday, market internals (particularly on Nasdaq) indicated that a slight majority of stocks declined over advancers during Tuesday’s session. In TrendVue Trader Talk we mentioned this should result in a number of stocks with “down bars in still-valid up-swings” and sure enough, the scanner results from Tuesday reflect this—each line in the list which is highlighted in green matches this pattern.
So a little profit taking was visible within Tuesday’s session and it may be that another day or more of this price action is ahead, although we do want to position for “surprise” moves up today.
Most trade setups for today will be long-side “lurk above the single down bar” types—the trade premise is that if price does move up and stop us in, we’ll want to see an immediate move to new highs and price to hold there.
If price triggers trades and then meanders or heads lower, the safest trading plan is to close out trades quickly and stand aside, for we will have to conclude that the market needs to retreat farther before buyers are willing to step up en masse.
As always, we’ll post an update on the day’s price action in TrendVue Trader Talk and on the web site as required.
Note, I moved up my exit stops much tighter as of yesterday.
Long Setups
General common strategy: Unless noted otherwise, buy stop just above the “high” value, with an initial protective stop at the low value of the bar, not below the bar.
Retracement or Pause in Up Swing / Up Trend
RFMD – single down bar in a still-intact upswing. Buy stop 6.16, protective stop if filled 5.89. Note comments on trade strategy in today’s notes.
ADI – comments as per RFMD, buy stop 38.07, protective stop if filled 37.23.
Test of Top – Continuation
EXTR down bar just below a test of swing high. Buy stop 5.21, recommend following this closely intraday if triggered.
GE a second attempt at capturing a move to new highs—this should not trigger unless GE has sufficient buying support to move up from here.
Short Setups
General common strategy: Unless noted otherwise, place a sell alert at or just below the low of the setup bar, and look for the first failed intraday bounce after the low has been broken. What we are looking for is price to push down, bounce a little, and fail again – this is where we want to get short.
Retracement or Pause in Down Swing / Down Trend
PFE – bear flag.
Special Situations
MWD – Long – single down bar in an upswing, placed here in Special Situations since MWD is also in a rising wedge. Caution warranted – hold if Tuesday’s high is broken and holds. Note: if the financial sector continues to weaken, MWD will show up as a short candidate in the days to come, although without financials holding firm, the same can be said about much of the market.
INTC – Long – this is a short candidate which triggered yesterday, however since its range was very narrow yesterday, aggressive traders can position a buy alert or buy stop just above Tuesday’s high, to capture the possibility of a pattern failure (failure of the bear flag).
Yesterday in TrendVue Trader Talk we suffered through a big intraday consolidation zone—once price cleared the zone to the upside, we noted that it was time to raise stops more aggressively (for those so inclined) since price really should not drift back down if the market is able to continue its upward march directly.
We also noted that VIX was positioned to reversed from relatively low levels. When you add up all the factors—a tightening trading range (range contraction), low levels of fear (low VIX), a long run up (since mid-August),
12:42:04 Mike: RSI of VIX swinging up here. SPX hit resistance drawn out from the June break of the rising wedge. And price has been rising strongly for several weeks. Seems like ingredients for at least a stall and minor retracement.
12:42:42 Mike: ... In the big big picture, which is another reason why I am starting to tighten up stops on in-progress swing and position trades.
14:43:48 Mike: It goes without saying that the support is also a line in the sand. There is approximately 10 – 15 SPX points to the next lower major support – one to two days range, so if price heads down, a one or two day pull back is what we’ll look for next.
And now, price is trading below what was support – now resistance once again – so we have no option but to become more cautious.
Eventually all good runs come to an end – and the move up from August certainly qualifies as a good run. For the time being we’ll continue to hold an upward bias, but act cautiously. We typically will not change our bias until one of two things happens—a test of top fails, on the daily chart, or, price starts to trend down on the daily.
Short and medium term swing traders have easy decisions to make – its time to take profits or move stops up to the point where profit taking will become automatic should the market decline further. All classes of investor should at least have swing trade positions protected by break-even stops or better.
The National Weather Service now pegs Mobile, Alabama, as the highest probability landfall for Ivan, although given the size of the storm its almost irrelevant now for Gulf Coast residents and businesses exactly where the hurricane first touches.
Source:NRL Monterey Marine Meteorology Division
Satellite imagery of Ivan - animated (Java based)
Reports are coming in that substantial production cuts have already been made as Gulf area producers and refineries evacuate or shut down in advance of the storm.
A perfect storm? This week’s Petroleum Institute report delivered a surprising reduction in crude inventory – almost seven times that which was expected:
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 7.1 million barrels from the previous week. At 278.6 million barrels, U.S. crude oil inventories are at the lower end of the average range for this time of year, and are the lowest since the week ending February 27, 2004. Motor gasoline inventories last week dropped by 1.6 million barrels, but are in the upper half of the average range. Distillate fuel inventories increased by 1.7 million barrels, with all of the increase seen in high-sulfur distillate fuel (heating oil). Total commercial petroleum inventories decreased by 3.6 million barrels, and remain in the bottom half of
the average range. Full Report
As a result, Crude futures have pushed up out of the intermediate time frame consolidation zone:
Oil and Gas service sector index holds near recent highs. When the storm clears, no pun intended, we may see some activity in this sector:
Today's transcript.
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Wednesday September 15 swing scanner data - TrendVue Swing Ratio: 0.88 : 1
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