Friday, January 7, 2005
Issue Contents:
| 09:06 | The Day Ahead Economic releases and news. |
| 09:29 | Swing Trade Setups Featured charts for Friday January 7th. |
| 11:57 | Intraday Update Heads up! Retest of recent lows on Dow, NDX; oil continues its march up. |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning – its Friday January 7th and the major economic news for the day has already been reported.
Weekly jobs figures came in a little shy of expectations1 however the overall picture is likely to be seen as positive.
Despite the fact that December came in below Wall Street economists’ forecasts for 175,000 new jobs, it followed upwardly revised totals of 137,000 jobs in November and 312,000 in October. Previously, the government said 112,000 jobs were created in November and 303,000 in October.
The US unemployment rate in December was unchanged at 5.4 percent. There were job gains in every month during 2004 as a total 2.2 million new-hires were added to payrolls – a turnaround from 2003 when 61,000 jobs were lost overall—and the strongest performance since 1999 when some 3.2 million jobs were created.
Canadian job growth in December came in well ahead of expectations, which may spark a rise in the Canadian dollar today on interest rate expectations, as its been trading generally weaker over the past few weeks.2
Stock index futures are marginally higher – Nasdaq futures perhaps a little more energetic than the rest. Gold is up more than half a percent; the US Dollar index is off about the same amount.
US Market Calendar
- 8:30 am: Employment Report – Dec.
- 10:30 am: Weekly Leading Index for the week ended Dec. 31
- 3:00 pm: Consumer Credit – Nov.
Canadian Market Calendar
- 7:00 am: Employment Report – Dec.
- 10:00 am: Ivey Purchasing Managers’ Index – Dec.
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 December Job Gains Less Than Expected
2 Canada Job Growth Surges in Dec, Jobless Rate Falls
Featured setups from Thursday January 6, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups
Notes for the Day
Two relatively narrow range days in a row – and price could not sink lower – so traders would naturally have been looking for a bounce here and the jobs number was excuse enough (being not too bad) to move futures higher.
We’ll need to be cautious of failing bounces, but if there are reasonable long-side setups available, chances are we will have to take them and just remain cautious for now.
I tend to use ETFs a little more heavily to gain exposure at times like this since its a convenient and low cost way to get in, and easy to get out. We’ll also look at some long stock setups in TrendVue Trader Talk this morning.
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.
ETFs
SPY – S&P 500 ETF, I would be more likely to stalk this as a potential short over the coming days – however the 3 Inside Up pattern exists here – buy alert or stop just above yesterday’s highs. We should see what happens first after the open as price is likely to gap up over yesterday’s close.
DIA Dow 30 ETF perhaps is an easier to visualize setup – with price having retraced to the former area of resistance that became support – the question now is whether that line turns into new resistance. If price can push directly higher here, many traders will assume that support has been reconfirmed. Buy stop just over Thursday’s high. We’ll be watching futures related to SPY and DIA very closely today in TrendVue Trader Talk.
XIU:C (TSX) – The TSX 60 index really does have all those gaps in it – holiday related. Three Inside Up setup at possible support.
XMD:C (TSX) – TSX Midcap index, while it trades very thin volume, I sometimes use this ETF as it has no Nortel exposure.
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
SPY – S&P 500 ETF, as noted, this should be stalked as well as a short possibility for a potential failing bounce if price rises towards resistance and fails. The same can be said of virtually all of the major index ETFs – SPY, DIA, QQQQ, XIU, etc. We will be following these all very closely in conjunction with our market direction analysis in the days to come.
CSCO – stalk a failing bounce with sell alerts just under the low of each day, keep on list for another day or so.
ORCL – same treatment as CSCO
JPM – broken wedge – stalk a failing bounce to the underside of the wedge. Sell alert just under yesterday’s low.
Earlier today we identified a large intraday triangle – these are periods of indecision, and as price nears the apex, price often pushes through both directions before ultimately doing what it will.
On the Negative Side…
10:22:55 Mike: In the big big picture, price is stuck in a triangle and nearing the apex
Since any sideways movement can be interpreted as a “pause” in the current dominant trend for the time frame we are looking at, we were prepared to get short even as it seemed that price had become rather stretched to the down side, so a quick move down was nabbed:
A little panic selling gave us some quick profits on a short this morning in Dow 30 futures – now that price has retested the recent low and is bouncing, we need to zoom out a bit and see what might turn up as opportunities in either direction.
The question now is whether this bounce to the trendline fails or not. Failure is easy to picture – sellers will be lurking under this bounce on declining volume – its a stretched but still “good enough” bear flag. But…
Potential Positives…
Price often pierces a triangle only to reverse – commonly we see either a bounce to the break out point and then another reversal to carry on the original direction (short setups underneath), or a complete reversal that is fueled by the surprise factor (long setups).
At this point price has bounced to the targets identified earlier – if there is a new long-side opportunity for swing traders here, it will be following the next attempt to push prices lower—the bear flag mentioned.
Any minor sell off that does not push much below 50% of the last bounce (as measured on larger time frame charts such as the 15M chart) will become a fulcrum point where an aggressive long-side trader can put a buy stop above. What this will look like is a bear flag that initially triggers a short and fails to continue lower. That is the cue to take action.
Market internals have firmed up a little since the sell off – so the potential is there. Our approach – let price prove itself – means that we wait for the event to happen rather than jumping in ahead of time. This protects us more often than not.
Back on the negative side…
Crude is at 46 and has seemingly confirmed support at 44. This won’t be helpful to stock markets if Crude holds here or rises further.
This of course could morph into a positive – every time Crude moves sharply higher, or revisits an important price to test, the possibility of failure arises and that would certainly spur stock markets higher.
Normally I don’t point out swing trade long entry opportunities during the day in the newsletter – we discuss this at length in the real-time chat TrendVue Trader Talk, but given the recent and potential climatic sell off, there may be good reason to attempt an aggressive long, provided the picture on the chart supports a safe setup.
Getting in such a trade early can make it easier to hold a new position – we merely need to ensure that enough profit is in the position to protect against all but the most extreme gap down the following day. At potential significant swing bottoms, the intraday approach is actually a little safer…
We’ll revisit the situation later in the day.
Today's transcript.
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