Wednesday, January 5, 2005
Issue Contents:
| 09:15 | The Day Ahead Economic releases and news. |
| 09:29 | Swing Trade Setups Featured charts for Wednesday January 5th. |
| 10:12 | December Non-Manufacturing ISM Report Business Activity at 63.1% |
| 11:09 | Crude Realities |
| 13:58 | Quick Take: Currencies & Gold Forex and dreaded yellow metal update. |
| 15:20 | Market Update NDX, S&P 500, Dow 30 |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 19:26 | Swing Scanner Results Wednesday January 5th closing data. |
| 19:27 | Market Statistics For Wednesday January 5th. |
Good morning – its Wednesday January 5th and today we have the Instutute of Supply Management non-manufacturing report to look forward to, followed up 30 minutes later by the weekly EIA Weekly Petroleum inventory report which has become a fixture of traders’ and investors’ lives alike.
Yesterday’s selling was broad based, leaving little untouched in its wake. According to the headline writers, yesterday afternoon’s release of the FOMC minutes from the prior meeting is sparked the selling. I guess those headline writers were not watching on Monday, or earlier Tuesday.
Oil? Interest rates? The market has been living with the spectre of high oil and rising interest rates for some time.
Fortunately for us, price is a simpler and more reliable guide.
US Market Calendar
- 7:00 am: MBA Purchase Applications
- 10:00 am: Challenger Job-Cut Report
- 10:00 am: Non-mfg ISM Index – Dec.
- 10:30 am: EIA Weekly Petroleum Status Report
- 11:00 am: Consumer Comfort Index for the week ended Dec. 31
Canadian Market Calendar
- 8:30 am: Industrial Product Price Index – Nov.
- 8:30 am: Raw Materials Price Index – Nov.
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.
Featured setups from Tuesday January 4, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups
Notes for the Day
Simple – lets be careful out there. It can be tempting to start shorting everything that moves after a couple of nasty down days, but rarely is that the right plan. Perhaps a third Black Crow day will show up, perhaps not – after such sustained selling, we generally expect at least a bounce long enough to size up the situation, and perhaps unload some longs we feel less than comfortable about.
Myself – in my long-only accounts, I’ve not been at this level of cash since early last year…
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.
Note: Will publish some long side trades in TrendVue Trader Talk this morning, once the market figures out what its made of at the open…
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
ALL – until proven otherwise failed test of top, and an up bar in a down swing to place a short below. Demand that price clear the two day low before considering keeping this.
Retracement or Pause in Down Swing / Down Trend
MCD – up bar in a down swing. This one is stronger than the market yesterday, so caution. Higher risk.
Test of Bottom – Continuation
FDC paused in the lower end of yesterday’s range – this is actually a 3 inside up long setup as well – one could attempt to buy above the inside bar. I would prefer not to trade this on the long side – any minor bounce from here should be stalked with a short just under the prior day’s low, for the next 2 days.
December Non-Manufacturing ISM Report
Business Activity at 63.1%; December Non-Manufacturing ISM Report On Business; New Orders, Employment, Order Backlogs, Imports, Prices, Exports Increase
Purchasing and supply executives report that business activity continued to increase in December in the non-manufacturing sector, with the fastest rate of increase since July 2004. The Business Activity Index for December is 63.1 percent, up 1.8 percentage points from November’s 61.3 percent. December’s index indicates continued growth across most non-manufacturing industries. In December, 13 industry groups reported growth, two indicated contraction, and two reported business unchanged from November. Increased business activity in December was reported by 36 percent of members, compared to 34 percent in November. Reduced activity was reported by 14 percent of members, compared to 9 percent in November. In December, the remaining 50 percent of members indicated no change in business activity, compared to 57 percent that reported no change in November.
But…
Significant reports of commodities in short supply or up or down in price in December indicate that construction labor and services; electric utility hardware; ethanol/ethyl alcohol; lumber; metals and metal products; roofing materials; steel; steel products; and tires are in short supply. Price increases are reported for airfares; aluminum; beef; cheese; chemicals; copper; copper cable and wire; electrical connectors and fittings; fuel; gasoline; hotel costs; lettuce; metals and metal products; natural gas; office supplies; paper products; personnel; plastic bags; plastic resin; plastics; polybags; pork/pork trimmings; resin/resin based products; roofing shingles; shipping and transportation costs; steel; steel products; tomatoes; welding supplies; and wood products. Price decreases are reported for chemicals; computer hardware; diesel fuel; fuel; fuel oil; gasoline; petroleum products/petroleum based products; pine, spruce, and treated lumber; produce; soy oil; tomatoes; and unleaded gasoline. More >
Crude – weekly continuous contract: price has not retreated so deep into the range that it could not pop back out and hold, so this is a caution for the market in general, and a potential opportunity for the oil sector to watch out for.
Crude – intraday: price has again bounced off the recent lows, said lows formed by the original sharp sell off late last year, and has moved right back to the 50% retracement line. Its easy to see this was once support, is now resistance – will this line again prove to be support?
Only time will tell – we merely need to be aware of the potential and that gives us a tremendous leg up on most of the street. Far too many have very fixed opinions as to what price will do at any given point. Frankly, I think much of forecasting is hocus pocus and hogwash, particularly in this world which can be impacted by storms and earthquakes, not to mention geopolitical flareups that come at times from out of nowhere.
Last Week’s Inventory Report
Summary of Weekly Petroleum Data for the Week Ending December 24, 2004: U.S. crude oil refinery inputs averaged over 15.7 million barrels per day during the week ending December 24, up 147,000 barrels per day from the previous week’s average. Refineries operated at 94.2 percent of their operable capacity last week. Gasoline production set a weekly record last week, averaging nearly 9.2 million barrels per day. Distillate fuel production averaged nearly 4.2 million barrels per day, which included an increase in high-sulfur distillate fuel (heating oil) production.
U.S. crude oil imports averaged nearly 9.9 million barrels per day last week, down 682,000 barrels per day from the previous week. Over the last four weeks crude oil imports have averaged over 10.4 million barrels per day, which is 785,000 barrels per day more than averaged over the comparable four weeks last year. Although the origins of weekly crude oil imports are preliminary and thus not published, it appears that the amount of imports from Iraq were relatively high last week, while those from Saudi Arabia were lower than average. Distillate fuel imports averaged 221,000 barrels per day last week, while total motor gasoline imports (including both finished gasoline and gasoline blending components) increased, averaging 989,000 barrels per day.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell by 0.8 million barrels from the previous week. At 295.1 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Distillate fuel inventories decreased by 0.8 million barrels last week, and remain just below the lower end of the average range for this time of year. Total motor gasoline inventories increased by 0.9 million barrels last week, and are above the top of the average range. Total commercial petroleum inventories declined by 6.8 million barrels last week, but remain around the middle of the average range.
Total product supplied over the last four-week period has averaged 20.9 million barrels per day, or 1.9 percent more than averaged over the same period last year. Distillate fuel demand over the last four weeks has averaged 4.3 million barrels per day, or 7.1 percent above the same period last year. Motor gasoline demand is up 2.1 percent, while kerosene-type jet fuel demand growth is down 0.2 percent over the last four weeks compared to the same four-week period last year.
This Week’s EIA Petroleum Status Report
Released 10:30 am ET today:
Summary of Weekly Petroleum Data for the Week Ending December 31, 2004: U.S. crude oil refinery inputs averaged 15.8 million barrels per day during the week ending December 31, up 81,000 barrels per day from the previous week’s average. Refineries operated at 94.8 percent of their operable capacity last week. Distillate fuel production set a weekly record, averaging nearly 4.3 million barrels per day. Gasoline production remained relatively high last week, averaging over 9.0 million barrels per day last week.
U.S. crude oil imports averaged nearly 9.8 million barrels per day last week, down 88,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged over 10.1 million barrels per day, which is 453,000 barrels per day more than averaged over the comparable four weeks last year. Although the origins of weekly crude oil imports are preliminary and thus not published, it appears that the amount of imports from Venezuela was relatively high last week. Distillate fuel imports averaged 276,000 barrels per day last week, while total motor gasoline imports (including both finished gasoline and gasoline blending components) averaged 837,000 barrels per day.U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 3.3 million barrels from the previous week. At 291.8 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Distillate fuel inventories increased by 2.0 million barrels last week, and are just above the lower end of the average range for this time of year. Increases were seen in both high-sulfur (heating oil) and low-sulfur (diesel fuel) distillate fuel. Total motor gasoline inventories increased by 2.0 million barrels last week, and remain above the top of the average range. Total commercial petroleum inventories declined by 2.5 million barrels last week, but are in the upper half of the average range.
Total product supplied over the last four-week period has averaged 21.0 million barrels per day, or 1.6 percent more than averaged over the same period last year. Distillate fuel demand over the last four weeks has averaged 4.3 million barrels per day, or 6.7 percent above the same period last year. Motor gasoline demand is up 2.5 percent, while kerosene-type jet fuel demand growth is up 1.5 percent over the last four weeks compared to the same four-week period last year.
Reaction
Crude is just sooo volatile! However, it has pulled back to roughly 1/2 of the latest swing up, and is currently bouncing. We’ll keep an eye on this while trading stocks and index futures today – if for some reason traders see fit to bid prices back up to the 50% line again, we may yet see fireworks today.
I’ve been trying to find the time to write a more indepth article on Forex and Gold for a while now, but events in the stock market have kept the joint hopping as of late. Lets have a quick look here while there is a lull:
GC – Gold, continuous contract, weekly: Price so far has neatly failed, after first attempting to find support at the break out point. As GC has not retraced too deeply into the range below, we need to see if there are any catalysts in the currency markets that might support Gold prices here.
EURUSD – rising wedge breaks; standard resolution is the base of the wedge – we may see an attempt to rally as price hit the 50 day EMA.
EURUSD – weekly: in the big picture it has quite some distance it can retrace and still be in an uptrend.
- EURUSD – not currently offering any support to Gold (rising = falling USD = rising Gold influence)
USDJPY – pretty messy chop here – but a big range move up out of the prior decline. Traders will be looking for any minor retracement here to locate a buy stop above. Overhead resistance 107 area marked out.
USDJPY – bigger picture less certain – failure to rise here is failure to hold the recent lows.
- USDJPY – no support for Gold on the daily chart; big heads up for possible failure on the weekly (USDJPY falling = rising Gold support)
GBPUSD – broke down big out of a triangle – traders will be looking at any minor bounce to establish a short.
GBPUSD – weekly: Again price has not retraced so far down into the range below that the apparent failure could not turn around – but it would have to be soon.
- GBPUSD – weak, apparent failed test of top, and therefore adding no support for Gold.
Summary
At this point unless we start to see reversals in all these currency pairs, we can expect the US Dollar to continue to appreciate and Gold to remain under pressure. EURUSD and USDJPY are our useful canaries in our gold mine as EURUSD clearly broke out of its long term range and is so far merely retracing; JPYUSD recently passed a test of bottom. Reversals of direction in either or both of these will tell us if we need to start selling USD again or not, and perhaps whether the dreaded yellow metal producers make sense to trade again, or not.
Markets have been moving largely sideways all day, which should not surprise us too much, since Nasdaq covered a whole month’s range in two days this month, and the NYSE covered at least half of December’s range, reminding us once again that price tends to fall much faster than it rises.
This is commonsense knowledge we can employ in our trading. For example, if faced with two equally good trade setups, one long, one short, if all other factors are equal I will tend to choose the short setup since my goal as a trader is to generate profits quickly, and use my working capital to turn around many trades within a given period of time. Clearly I’ll want to choose trades that are likely to move faster, given my strategy.
Long term—and even long-only—traders and investors can use this knowledge as well. If a stock or market has been moving up for a considerable period of time, our tools and experience will eventually suggest to us that price has become too stretched and is vulnerable to a correction at least, if not an actual reversal. Knowing this, we can:
- Take profits on some or all positions when major weakness occurs. Ideally we have protective stops in place to take all the thinking out of the process.
- Consider putting hedges in place. Puts, shorts on index ETF’s.
- Consider reducing market exposure.
Afternoon Update
So far, price has failed to push higher than this mornings HOD(High of Day), though perhaps in the late going here this bull flag, currently resolving upward, will take a stab at pushing through the high of day. Aggressive swing traders willing to take on a short might consider putting an alert below this attempt to break out higher – if it fails, then new lows are more likely than not (appears to be happening as I write this article).
Chop or bounce aside, the next key hurdle is how price acts when it slams into overhead resistance:
We can first expect sellers to come back out IF price can rise to these resistance levels. Chances are high we’ll have to wait for Friday or Monday before this fully plays out.
Today's transcript.
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Today's transcript.
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Wednesday January 5th closing data.
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Statistics for Wednesday January 5, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 51 |
|---|---|
| Symbols in Down Swings | 714 |
| Up/Down Swing Ratio | 0.07 : 1 |
| Advancers | 23% |
| Decliners | 76% |
| Unchanged | 1% |
| Up Bars | 8% |
| Down Bars | 70% |
| Inside Bars | 17% |
| Outside Bars | 3% |
| Close > 20EMA | 23% |
| Close > 50SMA | 46% |
| Close > 200SMA | 64% |
| 20EMA > 50SMA > 200SMA (trend up) | 37% |
| 20EMA < 50SMA < 200SMA (trend down) | 15% |
I do believe this is a new record low in the TrendVue Up/Down Swing Ratio—only 0.07 : 1.