Friday, September 3, 2004
Issue Contents:
| 09:05 | The Day Ahead Economic releases and news. |
| 09:29 | Index Review Strategy for the day. |
| 09:44 | Opening Moves: Nasdaq 100 Intraday update |
| 09:50 | Opening Moves: S&P 500 A tale of two markets. |
| 11:12 | Frances Update Impressive and scary. |
| 11:27 | Intraday Update Nasdaq, S&P 500 |
| 11:34 | Holiday Hours Labour Day weekend. |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning.
I took a glance at a few stocks and at overnight futures late last night and concluded that the market would be searching for some direction from the jobs report and thus so should we.
The report this morning1 – middle of the road numbers, which in themselves will not drive a significant reaction -is not going to help investors make up their minds today. In advance of a three-day weekend (markets are closed on Labour Day this Monday), whether price is bid up or driven down by day’s end is going to depend on the consensus of emotion that forms today.
The “headline” numbers from the report look positive on balance, yet the devil is in the details and unbiased economists and market observers will correctly judge the report as merely constructive, not a hit out of the park.
If may be that TGIF mode reigns supreme, with traders avoiding making major commitments in either market direction. Index futures are currently pointing to a weaker open than Thursday’s close, therefore traders will first look at a purely technical measure – whether the significant test of top, playing out now, passes or fails – to help them decide where to take their next step.
US Market Calendar
- 8:30 am: Employment Situation
- 10:00 am: ISM Non-Mfg Survery
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.
Across the four major indexes we have more differences than similarities:
- COMPX(Nasdaq Composite) has risen to key overhead resistance. A visual comparison between the major indexes makes it obvious that the COMPX had been beaten down significantly farther than the less tech-centric indexes. For us, this means that tech has the potential for greater percentage gains at major swings.
- From a technical perspective, the NYA(NYSE Composite) acts the strongest, having successfully navigated back to within the highest trading range of 2004.
- INX(S&P 500) and INDU(Dow Jones 30) indexes have pushed up to just underneath the upper most trading range of 2004.
These are critical price levels for all indexes. Success or failure here will tend to have a more significant impact on traders than the average run of the mill test we face all the time.
Strategy for today: After indexes moved up Thursday, leaving a significant expanded range bar in their wake, we first will look for a minor pull back intraday and a retest of the recent highs.
- If the test arrives, and passes, it makes sense to deploy some additional capital on the long side, holding over the weekend only if price gains intraday are sufficient to provide a decent profit buffer. In these tumultuous times, demanding our new entries have a profit cushion, ahead of a three day weekend, seems like a prudent measure.
- If the test arrives, and fails, its unlikely that today’s trade will deliver setups that support getting short the broad market. Rather, its more likely that price will trade in a range bound fashion. We have to remember that price is pointing up on the daily and weekly charts, and is more or less range bound on the monthly charts – so for now, our bias will remain “up” until analysis indicates otherwise.
We’ll update the newsletter as the day progresses.
Nasdaq futures:
We have four important price areas to monitor today. On the downside, the first to be tested (magenta line) is the first major area of support. Since the daily charts are in fact pointing up, we will first expect this area of support to be tested and hold initially. Price discovery will continue in the early part of this morning, as buyers and sellers size up each others level of commitment. If buyers signal weakness, price will no doubt again test this level of support – and if it fails we’d then look at the prior day’s low and then the low of the day before that.
On the upside, the yellow line marks the nearest significant area of resistance over head. As noted in this morning’s strategy report, if price succeeds in holding this level and indeed exhibits a willingness to move up from there, its time to deploy some funds on the long side.
S&P 500 index futures continue to underscore the differences between technology and the broader market, having already shaken off the opening price weakness to retest yesterday’s high.
If the test is successful, we will expect Nasdaq’s losses to be limited, perhaps even fully reversed.
If the test fails, it may be time to consider taking a few profits in individual stock names, provided they too are following the market lead and failing to push higher.
Our thoughts are with Floridians this weekend.
Intraday we’ve been executing a few shorts using leveraged futures (NQ) while largely sitting on our hands with regards to new stock trades.Nasdaq is dramatically underperforming relative to the S&P 500 index:
After failing at overhead resistance, Nasdaq 100 futures have very quickly hit the first two targets outlined in this morning’s strategy briefing.
Meanwhile, S&P 500 futures are still trading well above key support. Because of this, for now we must assume that price declines in tech will eventually moderate, perhaps delivering range bound trade for the balance of the session at worst. If key support in ES is broken, an acceleration of the selling would be the natural outcome.
For swing traders working off dailiy charts, today’s price action offers no opportunity in ETF, although the juxtaposition of price against important resistance levels means the yellow flag of caution is out.
Bond markets close early today (12:00 noon CT); all major markets of interest to us are closed on Monday in the United States and Canada in observance of the Labour Day holiday.
Today's transcript.
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