Tuesday, October 18, 2005
Issue Contents:
| 08:19 | The Day Ahead Economic releases and news |
| 08:40 | YM: Notes for the day Support and resistance |
| 09:14 | Swing Trade Setups Featured charts for Tuesday October 18 |
| 09:35 | Trendvue Trader Talk Schedule |
| 10:40 | Market Direction Morning Update |
| 11:11 | GE A proxy on the world market |
| 13:51 | Market Direction And a look at market internals |
| 14:03 | Trendvue Trader Talk Update |
Good morning, today is Tuesday October 18th, the 291st day of 2005.
Key release coming up this morning: another peek at inflation via the Producer Price Index for September.
Crude oil prices have backed off somewhat based on a still uncertain long term forecast that tropical storm Wilma will soon strengthen to hurricane status, but eventually veer towards Florida. The National Hurricane Center seems less convinced but that’s the official word at present.
In Tokyo yesterday, Federal Reserve Chairman Alan Greenspan spoke on Energy, before business groups:
We will begin the transition to the next major sources of energy, perhaps before midcentury, as production from conventional oil reservoirs, according to central-tendency scenarios of the U.S. Department of Energy, is projected to peak. Nonetheless, the transition will take time. We, and the rest of the world, doubtless will have to live with the geopolitical and other uncertainties of the oil markets for some time to come.
Nothing new there, although his reference to peak production – long an official DOE policy – may be his first.
IBM and MER both reported strong results and it seems that a number of companies are beating expectations. Indeed the Dow 30 index has been outperforming the other major indexes of late, as it broke yesterday its 5 day high. Before markets open, futures are up some 15 points – not too high, not too soft, perhaps just right…
Market Statistics for Monday October 17, 2005
| Symbols in Up Swings | 481 |
|---|---|
| Symbols in Down Swings | 193 |
| Up/Down Swing Ratio | 2.49 : 1 |
| Up Bars | 59% |
| Down Bars | 18% |
| Inside Bars | 14% |
| Outside Bars | 5% |
| Close > 20EMA | 62% |
| Close > 50SMA | 30% |
| Close > 200SMA | 48% |
| 20EMA > 50SMA > 200SMA (trend up) | 19% |
| 20EMA < 50SMA < 200SMA (trend down) | 30% |
US Market Calendar
- 7:45 am: ICSC-UBS Store Sales
- 8:30 am: Producer Price Index – September
- 8:55 am: Redbook – Oct. 15th week
- 9:00 am: Foreign Purchases of U.S. Securities – August
- 10:00 am: State Street Investor Confidence Index
- 1:00 pm: NAHB Housing Index – October
- 2:00 pm: Daily MMS Gulf of Mexico Shut-in Report
- 2:40 pm: San Francisco Federal Reserve Bank President Janet Yellen speaks in Salt Lake City, topic: U.S. economy,
- 3:00 pm: Daily DOE Office of Energy Reliability Situation Report
Canadian Market Calendar
- 8:30 am: International Securities Transactions – August
- 8:30 am: Leading Indicators – September
- 9:00 am: Bank of Canada Interest Rate Policy Announcement
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.
Yesterday the Dow 30 / YM futures closed strongly, leaving a 2B test of top in its wake. Key resistance: 10375; first support 10310.
YM: If price manages to hold generally above 10310 area during the price discovery or any chop that follows today, we’d then tend to expect the market to hold up for another day at least – and that is important, as other indexes look more like building bear flags than a strong reversal.
YM: On the big picture chart price hit the first two targets mapped out and stalled, as expected, at resistance. Clearing resistance quickly would confirm for traders that buyers are back but even if price starts to chop for a day or so, the market may be able to resist the pull back to the dominant trend (down). Should price break and hold below 10275 or yesterday’s lows then we’ll expect a deeper retracement if not continuation of the downtrend.
This whole process is an attempt at forming a bottom, and neither we nor anyone else knows if it will hold. So far so good is about the best we can do, and take a few profits along the way in case it does not.
Featured setups from Monday October 17, 2005 closing data symbol scan, http://www.trendvue.com/latestscan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
- Earnings reports are upon us once again; be sure before the close that you are not holding any new trades on companies reporting overnight. I do not as a rule check the stocks whose charts make it in here.
- A great many stocks are on day 2 of a bounce from the recent lows, many forming bear flags in the process. Its likely these bear flags will be triggered this week, perhaps today, unless the pace of this ‘rally’ picks up dramatically and that, at this time, feels unlikely. I’ve not included much by way of short trade setups, preferring instead to to use broader market ETFs for safety due to reporting season being upon us.
ETFS
QQQQ – there are two trades here, first today, a potential short (1) with targets at T1 and T2; For those that do not short, wait to see if a down bar (pictured in blue) shows up today, and then tomorrow stalk a LONG above that bar (2). There’s every chance a single down day today or this week may form the next lever to move the market higher. Lets just not forget T2 lurks below too…
IWM – as per QQQQ
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.
Test of Bottom – Reversal
GLW -first pause after a 2B test of bottom, which is a setup I always try to stalk, but I am not optimistic here – price often bounces to the overhead 20/50 ema’s as GLW has done here, and then acclerates to the downside. Therefore if this moves up it really has to close strongly in order to keep my attention.
MSFT – I rather hate trading this name as it generally moves slow but here’s a test of bottom and the first retracement following, showing the potential failed bear flag scenario I drew out on QQQQ. One day only.
Retracement or Pause in Up Swing / Up Trend
UNH – healthcare, a defensive sector. Price really needs to prove that the recent gap up is an indication of more to come, not culmination (no more buyers). Will be stalking this for a few days if it fails to trigger or hold up today, unless the gap fills and heads lower in the next few days.
JNJ – have been watching this and other defensive names closely; this is the first post-news retracement to get in on, and since price pulled back only 1/2 way through the tall up bar, its on my list. Continuation is key.
ADP – a defensive name that I’ve been stalking and finally here’s a good entry point above yesterday’s high.
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
LBTYA has moved below old support which is now resistance; a minor up bar yesterday affords a place to lurk here for a short (similar to QQQQ).
Special Situations
DNA – LONG – reported last week – and now there’s a chance for it to break higher out of this triangle.
AAPL – LONG – was their news enough? So close to 52 week high… if the market tone improves today or later in the week this one might just revisit those highs.
N – LONG – announced a merger with another Canadian producer, making them a minerals powerhouse. Market has digested the news over the past few days – can it make 43.70 new support promptly today or not is the question. Stalking a long at yesterday’s high using 20 or 78M charts – the setup on the daily is not very clean here.
Still no change in news on our chat server; expectations are that it will be up and running by the early afternoon – I’ll keep everyone posted.
So far, price has been held back by resistance at the 2B test of top near 10375. We should be stalking longs above that level now, provided price can climb fairly quickly above the retracement now forming:
YM – 5M
Should a short be stalked here? Yes, we can go both ways—any significant 2B test of top is automatically a decision point – if price fails then the current up trend (in smaller intraday time frames) is in danger of reversing. Just remember – a failed test of top is not a trend reversal, just the opening shot in the war. Not until the upper-most trading range lows are broken and price starts to trend lower – with lower swing highs and lower swing lows – can we say that an uptrend has reversed.
I’d noted 10338 on a chart earlier this morning without speaking as to why that line is there – if you expand your view to the past few days you’ll see its a level which price has been dancing around as support or resistance for a number of days. Again this morning price manged to find support there, but if price soon fails to hold these levels, at that point I will start stalking shorts—cautiously since the prospect of chop is more likely than not—in anticipation of the trading range low (near 10310) failing to hold.
Key levels:
- > 10375 and holding reconfirms the current up intraday up trend, now on day 3
- < 10310 and holding reverses the intraday uptrend, at least until price can again move higher than 10310.
- < 10335 = warning on the long side.
We’ve been watching GE off and on over the last two week – following a 2B test of bottom, GE has moved up smartly, and offered a simple three bar retracement last week to get a long started.
GE, daily
As we can see price didn’t make it too far before stalling out at resistance near 34.50 – such is often the case after a big decline – the first decent move up runs into prior resistance or a declining trendline break out (also occured last week) pauses and reconfirms.
There is also a rising wedge here – just another name for a consolidation zone. The typical resolution of a rising wedge, when found in an overall down trend in the same time frame, is down – to the base of the wedge.
This is not a hard and fast rule but enough people know it and believe it that such an outcome becomes a self fulfilling prophecy very often. Perhaps GE has moved up too nicely for a full retracement but it does seem likely we’ll see, probably today, a solid break of the lower trendline.
This break may offer aggressive intraday traders a long opportunity – if a decent setup shows up intraday on 5 or 20 minute charts I’ll take it, and will hold the position if it closes sufficiently higher. If not, we should wait for tomorrow and stalk a surprise long at today’s high.
Quite a divergence in performance has appeared between the NYSE and Nasdaq composite indexes, which, in total, form the broadest measure of US equities there is.
While it won’t surprise me too much to find that Nasdaq later or tomorrow breaks its still-forming bear flag (a rising wedge in intraday time frames), the differential suggests we pay close attention to long-side opportunities in the Nasdaq market during the next couple of sessions.
VIX Reversals
S&P 500 Index with VIX and VIX.N (Nasdaq)
When markets appear to be reaching extremes, in either direction, the 5 period RSI of VIX plus the raw VIX data itself can a handy tool in confirming a significant turn. When the 5 day RSI of VIX is above 70 or below 30 we start to look for reversal signals. Now on day three of the bounce, what next?
What Next
As usually happens if an energetic move up – a “V” bottom (like in May) – does not take over – sellers come in. Now the next question is whether its a single day decline (look for answers tomorrow) or a full retracement of the bounce and a retest of recent lows.
YM – this colour coded chart hopefully gives the impression of increasing risk the lower price heads. Ideally price will find a bottom near the lower end of the uppermost trading range (base of yellow area); if not, then a trend change will have occured in intraday time frames significant enough to call into question the entire move up, and in that case the likely next down side target is near 10270, and a complete retracement if that area fails to hold as support.
Intraday at the time of wriing there is a bear flag forming just above the range lows discussed. A short trade can be stalked below the rising flag for a few more minutes; the next likely long-side trade setup will be after the bear flag is triggered: stalk a “bear flag trigger failure” above the bar that triggers other folks short.
Coming soon: Its now or never time…
We are making progress with correcting the chat server issues, but given the lateness of the afternoon I do not expect Trader Talk will be until tomorrow morning, ready for the open.
Heads up, potential bear flag trigger failure setup on YM…