Tuesday, January 4, 2005
Issue Contents:
| 08:45 | The Day Ahead Economic releases and news. |
| 08:57 | Internet Privacy Alert Web Beacons |
| 09:15 | Notes for the Day |
| 09:16 | Swing Trade Setups Featured Charts for Tuesday January 4th. |
| 11:24 | Quick Take: Market Update 11am look at the various indexes and the plan for now. |
| 14:50 | Market Update: COMPX After making a new 52 week high yesterday morning, Nasdaq has erased virtually all of the gains made in December 2004 in only two days. |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 21:28 | Swing Scanner Results Tuesday January 4th closing data. |
| 21:34 | Market Statistics For Tuesday January 4, 2005 |
Good morning – its Tuesday January 4th, and finally all markets in North America are back to business.
Yesterday’s surprise broad-based sell off will no doubt be the most talked about news on the street, although Factory Orders at 10:00 am may catch some interest as well.
US Market Calendar
- 7:45 am: ICSC-UBS Weekly Chain Store Sales Snapshot for the week ended Dec.1
- 8:55 am: Johnson Redbook Retail Sales Index for the week ended Dec. 31
- 10:00 am: Factory Orders – Nov.
- 2:00 pm: FOMC minutes from December meeting
- 4:00 pm: Motor Vehicle Sales
Canadian Market Calendar
- No scheduled releases.
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 Chain Stores Sales Rise in Latest Week
Noted on Yahoo’s Prvacy Policy page, Yahoo is using a technology called “web beacons” which allow it to track web sites you visit other than just the Yahoo site. Visit their Web Beacons page for more information.
If like me you don’t appreciate companies following your every move, Yahoo lets you opt out, with a single click here: http://pclick.yahoo.com/p?optout
In my amazing free time I may hunt down similar facilities (and hopefully find remedies) at other large web properties on the net…
Following a big down day, price will often grind along sideways or slightly up, but mostly contained within the lower 50% of the bar of the day before. Only rarely does price completely reverse in a “V” shaped intraday trade.
Since the odds favour this being a somewhat nothing day, I’m not publishing a lot of what appear to me to be marginal swing trade opportunities – we should have at least a day to find targets before the market has another opportunity at pushing directly higher. If that changes during this day, I’ll put notes up on the site and in TrendVue Trader Talk in short order.
COMPX
NYA
What we have here are rising wedges in both the Nasdaq and NYSE composite indexes, and a clear uptick in declining volume. Whether these sharp sell offs are the opening gambit in a larger decline, or merely a shakeout before pressing higher, we won’t know likely for another few days here.
For now, a bounce is certain, the question is how far does it go… and this is where our larger time frame intraday are going to be most useful.
Featured setups from Monday January 3, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups
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
CNXT – a little tricky, this is a long after an attempted “trendline breakout” which has since pulled back. The breakout might indeed fail, and price pull back into the triangle below, however a buy stop or buy alert just above yesterday’s high is the safest way to play a “breakout” of this nature—we get ready at the first retracement and that’s here and now. Note CNXT is also wedged in between the 20 and 50 day moving averages – this does raise the possibility that price might just grind along, so we’ll only want to give this one shot and ideally it makes a new two day high after triggering or at least closes with solid profit. Carry this forward to tomorrow only if price does not retrace too much further (stays above the three day low).
Test of Top – Continuation
CD after selling off big in October has a relatively constructive chart, here retesting the recent highs. Buy stop above yesterday’s inside bar / harami.
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.
Test of Top – Reversal
NWL – a not too nicely formed “dark cloud cover” bar here at a test of recent highs. Short alert 23.93, hold only if solidly profitable at the close. Note the weekly chart:
NWL – weekly – in the bigger picture, NWL may be done going down in a big way, as its been going down for some time and perhaps has retested its lots in October for a final time, so we need to keep expectations low at the start. Initial target marked at the X.
I am not especially negative on the market at this point, but with all these range tops failing, we can’t be overtly positive either. At this point all we can say is that, until proven otherwise, the broader markets are in the process of failing, but have not failed outright as yet.
We define outright failure as a change of trend. A change of trend, in the big picture, requires that price start trending down below the major range bottoms marked out on these charts (NQ and ES). Dow / YM would have to start trending below 10620 (approximately) before we’d conclude that it has completed a change of trend.
Of the three major indexes, the Dow (YM) is the only one holding support, so far. We have shorts on from yesterday as well as new YM short initiated at 10761 – some profit taking to pay ourselves makes sense, as we wait out what’s next.
Plan for the day: In smaller time frame charts than these there are tests of bottoms in the S&P 500 index and futures. This is where aggressive long-side traders attempt to take a stand.
Until proven otherwise, sellers will expect to see the first intraday bounce of significance fail. What happens there will be very instructive. If that bounce does fail, secondary targets are marked out as T2.
Our Dow / YM shorts from yesterday and today continue to outperform usual expectations. But the big story is Nasdaq – now coming in for a touch down at the lows of December 2004:
Yes, that’s correct – after making a new 52 week high yesterday morning, Nasdaq has erased virtually all of the gains made in December 2004 in only two days. In the big picture, its a pretty small move…
… but for those recently piling money into the market, the big picture doesn’t matter quite so much – they already feel significant pain.
What’s most important is the failed test of top here in Nasdaq on the weekly charts, and the two failures documented here recently on the intraday charts. Failed tests of important tops are always important to market professionals, as these are the points at which trends start to bend.
Yet it takes a long time before a trend change is confirmed on the daily charts, as price first has to break the upper most range bottom, and then start making lower swing highs and lower swing lows. By the time most understand that a change in trend has taken place, they’ve given up much of their profits, or, egads, allowed profitable positions to turn into losses.
This we must never do.
Clearly then, the daily chart is not always the tool of choice. To give us the lead time we need to make decisions before the crowd does, we really must incorporate intraday charts into our analysis.
Colour coded to make the importance of the uppermost range more evident, the key thing to remember is that a change of trend is in place if price starts to trend down below the uppermost trading range. Period, full stop, no debate, as this is the classic definition of a change of trend. What was up, will be down.
Clearly, the next few days is of critical importance, so we need a plan:
- IF price can regain the range (yellow) and hold, THEN we can look for long-side opportunities in stocks or ETF, knowing that a failure of the range low in the days to come is likely to lead to a further sharp sell off in Nasdaq names. We should also carefuly evaluate our stop loss protection on existing positions, and ensure that profits and trading capital are protected should prices fail to hold the range.
- IF price can move above the 50% level of the range (yellow), we’ll start to feel a little more comfortable about participating on the long side in Nasdaq, but not entirely easy with this unless Nasdaq NDX / NQ can push above the range high into the green area and hold.
- IF price can not regain the range on any minor bounce here, THEN we can look for a short opportunity underneath any minor up bars on the daily charts – or on significant time frame intraday chart. We’ll be particularly interested in stalking a short if price largely remains in the red zone below the uppermost range (yellow). THEN we can look for stocks that are following the Nasdaq closely, preferably using liquid instruments, or better yet, use a liquid ETF such as QQQQ since we monitor the QQQQ / NDX / NQ so closely, with a view to capturing continuation of the move downward.
- AND unless we are using a QQQQ short or some other mechanism (puts) as a hedge against other positions, IF price failed to regain the range and hold, THEN we should clearly be more aggressive in taking profits and moving protective stops closer to price.
Today's transcript.
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Tuesday January 4th closing data.
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Statistics for Tuesday January 4, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 68 |
|---|---|
| Symbols in Down Swings | 698 |
| Up/Down Swing Ratio | 0.09 : 1 |
| Advancers | 9% |
| Decliners | 89% |
| Unchanged | 1% |
| Up Bars | 3% |
| Down Bars | 83% |
| Inside Bars | 6% |
| Outside Bars | 6% |
| Close > 20EMA | 10% |
| Close > 50SMA | 56% |
| Close > 200SMA | 67% |
| 20EMA > 50SMA > 200SMA (trend up) | 49% |
| 20EMA < 50SMA < 200SMA (trend down) | 11% |
New: TrendVue Market Statistics now track the percentage of symbols which delivered Up, Down, Inside and Outside bars during the session. Subscribers will also find a minor change, effective from this day forward, in the Swing Scanner output.