Wednesday, October 19, 2005
Issue Contents:
| 04:56 | Trendvue Trader Talk Update |
| 05:16 | The Day Ahead Economic releases and news |
| 09:42 | Market Direction And a bear flag it is |
| 10:03 | Swing Trade Setups Looking for outliers |
| 10:12 | Futures: YM Fake and Break or Shot Across The Bow |
| 10:59 | EIA Status Report Demand reduction bottoming out? |
| 12:24 | Futures: YM Update |
| 12:53 | Energy Panic? |
| 15:05 | Market Direction Afternoon comments and an update on Energy. |
Ok, its official… I give up!
Murphy is not with us this week as it seems that digichat.trendvue.com is down for the count with a more serious hardware problem than first diagnosed. After getting some sleep we’ll be working on plan B to bring configure a new server but this will mean another day down before all is said and done. One way or another we will be back on the air for Thursday’s session, and in the meantime, look to the web site for regular market updates as needed.
Please accept my apologies…
Good morning, today is Wedensday October 19th, the 292nd day of 2005.
Hurricane Wilma intensified rapidly overnight and has become a dangerous category five hurricane, perhaps reaching historic proportions, according to the National Hurricane Center.
Aside from storm track updates, traders will be most focussed on today’s housing data, the EIA status report at 10:30, and the Federal Reserve Beige Book later this afternoon.
US Market Calendar
- 7:00 am: MBA Purchase Applications
- 8:30 am: Housing Starts – September
- 8:30 am: Building Permits – Sep.
- 10:30 am: EIA Petroleum Weekly Status Report
- 12:45 pm: Federal Reserve Governor Donald Kohn to speak about the U.S. economic outlook at Carnegie-Mellon University
- 2:00 pm: Beige Book
- 2:00 pm: Daily MMS Gulf of Mexico Shut-in Report
- 3:00 pm: Daily DOE Office of Energy Reliability Situation Report
Canadian Market Calendar
- 8:30 am: Wholesale Trade – August
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.
Pretty much on right on time… after 1 – 3 days if a bounce has not picked up (or held on to) substantial steam, sellers will find a reason to step in. Thus the bear flag is triggered.
Market Statistics for Tuesday October 18, 2005
| Symbols in Up Swings | 409 |
|---|---|
| Symbols in Down Swings | 265 |
| Up/Down Swing Ratio | 1.54 : 1 |
| Up Bars | 28% |
| Down Bars | 49% |
| Inside Bars | 10% |
| Outside Bars | 10% |
| Close > 20EMA | 21% |
| Close > 50SMA | 24% |
| Close > 200SMA | 46% |
| 20EMA > 50SMA > 200SMA (trend up) | 22% |
| 20EMA < 50SMA < 200SMA (trend down) | 31% |
Major Markets – Daily
The target for a bear flag is always the base of the flag; should price stall and not race for the target today, then the potential for a long side trade, tomorrow, will exist on a setup we call the Bear Flag Trigger Failure.
The dynamics of a good ‘anti’ trigger failure trade involve trapping the most amount of people off side as possible; the whipsaw up now down is probably as good a potential setup as we’ve seen, particularly in conjunction with tests of support near by and descending trendlines everwhere potentially being broken again today (Nasdaq Composite, S&P 500).
Of course, the setup may not trigger and price may just blast through recent support and carry on a new leg down. Price is in a down trend afterall, which is why we let the market prove itself to us by moving in the direction of our expected trade rather than buying while it still is falling or selling short while price is still rising.
Today I’m looking for “surprise” reversals on the long side and using broad market ETF’s for short side trades. Should a significant reversal shape up here I will add long exposure using DIA Dow 30 ETFs or IWM.
Trawling through our list of late, the following are still valid long-side trades:
ADP
MSFT continues to try to hold up even this morning
UNH may indeed have a continuation gap – a sign of strength – here – holding a long only if price closes strongly
Plus, despite energy being so beaten up, as price comes in to retest last week’s lows, I will be stalking new longs there as well. Incredible volatility makes for an excellent trading environment for the nimble, and perhaps, just perhaps, this last clunk will mark a panic low.
ECA
CHK – intraday – for example but pick almost any substantial name in the sector and monitor the retest of recent lows. If price can not hold up here we’ll simply be stalking buys much lower.
Cash, the Other Trade
Sometimes doing absolutely nothing is the right thing to do. Lets not forget that.
Gaps down or up often mark swing reversals. Gaps down or up often mark swing reversals. Gaps down or up often mark swing reversals.
Repeat as often as required, to remember why on a negative day we still need to consider the long side, even as we are lubing our sell keys, waiting for a sellable bounce to take hold (happening/happened here).
YM 45M
What happens at 10315 is key, and, should price manage to make 10315 support again, 10385 is the next major target:
YM 135M
And if 10315 holds as resistance, then the LOD is T1, and a failure to hold there will almost surely bring price back to 10175 area in time, the October 13 lows.
Total product supplied over the last four-week period has averaged over 20.0 million barrels per day, or 2.8 percent less than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged over 8.8 million barrels per day, or 2.4 percent below the same period last year. Distillate fuel demand has averaged 3.9 million barrels per day over the last four weeks, or 4.0 percent below the same period last year.
Last week we noted that demand reduction appeared to be bottoming out; historically that has only meant demand increases are soon to follow. Lost in the noise of a build in petroleum stocks this week, demand is inching back up again.
From today’s EIA Weekly Petroleum Status Report:
Total product supplied over the last four-week period has averaged over 20.0 million barrels per day, or 3.2 percent less than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 8.9 million barrels per day, or 2.2 percent below the same period last year. Distillate fuel demand has averaged over 3.9 million barrels per day over the last four weeks, or 4.0 percent below the same period last year.
It remains to be seen if high prices have permanently caused a shift in US consumption habits, or, as seems more likely, once we’ve all sucked in our belts a little, we carry on as before.
YM failed to break above key resistance and hold earlier this morning; its last line of defence against a much more significant pull back rests near 10245 – 10250, which, if retested today, will result in a retest of low of day.
Generally we expect stronger markets to hold up and find lasting support near the 50% – 62% retracement levels of the most recent significant rally. So far, YM has done this but unless price starts to make a series of higher swing highs and lows intraday, closing at least above 10315, the prospects of a simple continued move up grow dimmer.
Key levels: > 10275, aggressive traders will be hunting longs, under those levels all traders stalking shorts for a retest of LOD or lower. Less aggressive folks will want to wait until price is solidly over 10320 – 10330 before being aggressive on the long side.
Point of interest: So far the Nasdaq Composite, S&P 500 and Dow 30 indexes all have configurations on the daily chart that do point to a potential bear flag trigger failure setup for tomorrow.
I’m fond of stalking high-speed moves, in either direction, to fade – when it makes sense. Today’s clunk is again one of those times for aggressive traders to look for opportunity.
XLE – energy sector ETF
I say this bearing in mind the incredible run up in energy and fully cognizant of the real potential for the head and shoulders patterns, present across much of the group, to fully resolve to the down side.
But, some of the intraday charts are rather compelling this morning. While the sector may again fail to hold any bounce, provided traders are willing and able to set stops, take partial profits, and get a break/even basis, the sector offers tremendous volatility and thus potential for short term gains.
APC – less compelling than many, if price clears 86.75 and holds above, we should expect price to rally once more. Its really charts like CHK and ECA and TLM which turn my crank today:
ECA – a parabolic fall; less aggressive folks can stalk longs if price breaks and holds above 47.70 area.
TLM – a declining wedge – occasionally these will break down in one last vertical clunk, only to reverse shortly (within minutes) thereafter. I’ve no choice but to stalk it twice in that case, bailing an earlier position if it does so.
Across the sector there are many similar examples. Tomorrow will have to be an up day for the sector to confirm this as a potential important swing low if not a lasting range bottom.
Stalking and executing a good trade requires four components:
- The Setup
- Risk Assessment and Exit Strategy
- The Trade Entry
- The Trade Exit
Today, indeed earlier this week, we discussed point 1 – The Setup. In fact there were two major possibilities lying in wait for us before the day started – a full retest of the recent swing lows on the daily, or, a bear flag trigger failure.
With the setup in mind, we then look for entry possibilities off the daily and intraday charts. The setup off the daily is one we can take our time with—that’s tomorrow’s work. Today was all about the panic sell, typified by gaps down, or high speed clunks to important tests.
Markets
YM – this morning’s gap down failed to gain momentum and very quickly we need to size up the potential for a reversal. When price gaps down and closes strongly into the prior day’s range, a piercing line reversal is set up on the daily chart – markets are on track to doing this today. Earlier in the morning we laid out the key levels of support and resistance where we should look to lean long or have a short bias. Once 10315 – 10325 was reconfirmed as new support from old resistance, you can see how price has accelerated. So far, so good.
The bigger picture beyond today: price has hit the key target – 10385 – and should price hold above and start to trend higher on an intraday basis, we’ll be able to say that price has held above the lowermost range, the first step in a longer term trend reversal.
Energy
Earlier today we looked at ECA as an example, albeit a darn good example, of a panic bottom at a key test - and now:
ECA – Intraday – the “setup” was a test of bottom on the daily charts; the “heads up” was the parabolic sell off this morning. When there’s a valid “setup” it takes no brains and surprisingly little intestinal fortitude to buy the scary dip.
Into a life a little risk must fall… at least when price is moving at high speed, any potential reversal is likely to be as well, at least in the initial stages. Provided you’ve got a good setup, and have worked out in advance of your trade how much risk you are willing to take, and have stops ready to go, such high speed clunks can be very rewarding game to stalk.