Friday, October 21, 2005
Issue Contents:
| 09:04 | The Day Ahead Economic releases and news |
| 09:11 | Market Direction A look at the big picture |
| 09:12 | Swing Trade Setups Featured charts for Friday October 21 |
| 09:15 | Forex and Gold USD, CAD, EUR and Gold |
| 09:53 | Futures: YM Trading notes for the day |
| 10:03 | Random observations Counter-intuitive |
| 11:05 | Futures Heads up... test of yesterday's low. |
| 12:57 | Intraday Update Patient stalking pays off. |
| 15:01 | Afternoon Update Its 3pm and markets are approaching happy hour... |
Good morning, today is Friday October 21st, the 294th day of 2005.
With no regular economic news releases on the schedule today or Monday, all attention will be focussed on earnings report and, more importantly, to investor reaction to the usual set of dissappointments and positive surprises.
Before the open, stock index futures are up marginally; oil is lower; and hurricane Wilma is said to be headed to Florida, even though its currently pointed north north west, following a predicted hard right turn over the weekend.
Market Statistics for Thursday October 20, 2005
| Symbols in Up Swings | 378 |
|---|---|
| Symbols in Down Swings | 296 |
| Up/Down Swing Ratio | 1.27 : 1 |
| Up Bars | 61% |
| Down Bars | 15% |
| Inside Bars | 9% |
| Outside Bars | 10% |
| Close > 20EMA | 19% |
| Close > 50SMA | 26% |
| Close > 200SMA | 47% |
| 20EMA > 50SMA > 200SMA (trend up) | 22% |
| 20EMA < 50SMA < 200SMA (trend down) | 30% |
All four major indexes are trading either right at or just under key resistance; 3 of cour are trading somewhat under the 50% retracement of the 2005 rally lows. Of the major markets, Nasdaq is starting to show up as a leader, after having lagged other indexes for some time.
Consequently, leaning to the tech side is likely the right thing to do here, as we’ve been noting since last week. In all cases, its most important that price starts to climb, and hold, back above the significant resistance lines mapped out overhead. Nasdaq and Dow 30 appear to be best positioned to do this at this time – QQQQ and DIA ETFs may be of use here, should buyers choose to step i and support this market today.
Featured setups from Thursday October 20, 2005 closing data symbol scan http://www.trendvue.com/latestscan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
- As noted in this morning’s big picture look at Market Direction, Nasdaq is best positioned to reclaim the range overhead and turn resistance into new support. I personally am going to lean on QQQQ for exposure as I see very few charts that I like, perhaps an indication that Nasdaq will just end up catching up to the rest and move down instead…
- Reminder – ensure your new and existing positions are not reporting over night or before the open on Monday, unless you enjoy games of chance… I sure do not!
ETFs
Truly a point of indecision here in the big picture as price chops around in a range – this is not uncommon following a big multi-week sell off – most chop zones last between 7 and 12 days, so this one is in its middle age already.
DIA – Dow 30 – I’ll be stalking longs and/or in YM futures here IF price can most above the 50% line of yesterday’s tall down bar.
QQQQ – as noted in the market direction piece, Nasdaq is the strongest of all four major indexes.
IWM – Russell 2000 – sometimes moves in tandem, off major lows – with 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
AMT – communications infrastructure – has been testing the low and of its upper-most range. I’m stalking longs here at the two day high and will hold if price closes well. If this range low breaks down today or over the next few sessions, it will appear on our short list following any minor bounce.
GIS – foods – stalled at gap, which is not uncommon. The trade is for a gap fill – cancelling my interest if price sinks below the tall up bar of several days ago, otherwise will follow up for one more day if not triggered today.
ZRAN isn’t a test of bottom so much as a retest of a prior swing low following a big clunk – occasionally price will turn around on such a test. Stalk the 3 inside up, hold only if a solid close is made. Looks like not a bad chart, overall, no? How about this view:
ZRAN, an expanded view. Always keep in mind the bigger picture. Now there may be reason why ZRAN can hold here, but this chart does inform us with no uncertainty that ZRAN is in a down trend, and, if that down trend does continue, there’s a lot more room to fall. On the other hand, ther’s potentially 4$ of upside on this one too, over a longer period of time. Just keep the big picture in mind and do not let a profitable trade later turn into a loser.
Test of Top – Continuation
TEVA – generic drug mftr – these names have been getting Bird Flu lift, which may or may not hold up here. Caution.
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
LYO – chemicals – a triangle break and bounce to stalk short.
Special Situations
BAX – long – reported yesterday, reaction was not as bad as might have been expected so perhaps the news was already baked into price. Really needs to push above resistance soon…
USDCAD – the “petro-economy” of Canada is faltering a little, thanks to the pull back in crude, but there is a rising wedge here which may yet resolve to the 2005 lows for USD against CAD.
EURUSD – may be holding the 2005 lows; Bank of England and European Central Bank are widely expected to start raising rates in the intermediate future, after having held rates for, well, eons. This will reduce the differential between the USD and euroland and ought to bring some support to these GBP and EUR at the expense of the USD.
USD Index
Gold – perhaps time to dabble here.
Gold Stocks
Will Gold pick up steam again following the latest sell off? In times of uncertainty it has been a destination for capital to be sure. There are not any tremendous setups here but its probably time to pay closer attention to the group again following the recent pull back in the metal itself.
ABX – chart looks terrible and there is no easy long-side trade here; if one wants to stalk the short side, follow any minor bounce up. Support off the August lows is rather weak justification for a long side trade, although that tall down bar from Wednesday may indeed mark a tradeable low.
Given the potential for a rising wedge breakdown in USD I will monitor these names intraday and take trades that make sense off the intraday chart on 20 and 78 minute time frame, but this is higher risk activity and not for the end of day trader.
NEM has a slightly better looking chart, dancing around its 50 period EMA here.
At the open
YM 2M – at the open price has broken out of the triangle formed at yesterday’s close – we’ll expect some amount of retracement, probably to the triangle upper trendline or just in case, and perhaps even a retest of yesterday’s lows. Initially I’ll be following price down aggressively with buy stops above but not until price has made at least an up bar – that gap will almost certainly be filled, and aggressive traders will want to sell the first up bar that shows up.
Big picture
YM 15M – price is stuck in a big range; was we can see on the 45M chart we could even call this very big range a rising wedge although its far from classically shaped. If there is any hope for the market, it will quickly turn yesterday’s late-session sell off into a bottom bu pushing above 10340 and holding.
Key levels
- 10340 and up (and esp > 10380) bias has to be to the long side
- 10260 and under, and holding, bias remains short until a successful test of bottom at 10175 area – the major low of October
- If price chops around between 10280 and 10340 for very long, back off activity. Only in the early going here do we want to be very aggressive.
For whatever reason, the energy names are finding some buyers at the open. Perhaps they haven’t been punished enough! At some point, following a big clunk, buyers will be back in the sector – the question is how long will they, or we, stick around.
Watching a few names for the first retracement of the day; we may find that these early bouts of strength completely reverse but, given the huge pressure in the sector of late, it makes sense to keep an eye out for any evidence of surprising strength. My expectations for the group are rather low - the momentum in the commodities themselves is certainly down and has been building; once the snow starts flying that may change again.
XTO – 78M
XTO – 1M fairly brisk move up following an initial lower opening, interesting to note.
APC – similar
CHK – here too
We could add ECA to the list but I’m afraid that all the speculation in that name of late has likely soured traders on it and thus its likely to remain under pressure longer.
Nasdaq continues to be the strongest market; here in YM we see price at the do or die point:
YM – 15M – this is important: the grey band marks a range which has been building up over the past few days – in the past we’ve seen such bands, following a clunk down out of the range (10/14), turn into new support. Price must rally here for that to happen today.
In bigger time frames the pattern is akin to an inverse head and shoulders reversal pattern, except the neckline is far above.
Less aggressive long-side traders will be stalking the first retracement AFTER price bounces back into the range; aggressive folks are already long and with tight, tight, stops. As I type this, the first retracement is happening and I am setting up orders for long YM > 10252… if filled, will be quick to get to break even stops or low risk. And if the bounce fails and heads straight down… I’ll still have my cash and will be looking for pauses and retracements in the next down leg.
YM – 2M
On the short side… simply wait for the bounce and position below.
My bias? Probably ever so slightly to the long side, partly due to the range discussed and partly due to the widespread negativity, but this slight bias towards looking for surprise on the upside will disappear completely if the range discussed above fails to hold here near 10250.
YM / Dow 30 needed to dip a little below that range we drew out earlier today, and now that price is back within the range, we should be stalking retracements to buy above. Next targets: 10320 and then 10380; a close above 10380 will reinforce the sense of a bottoming process in the market. If price should break below 10250 later in the day, exactly the opposite impression will be imprinted on the market and our bias will have to switch back towards looking for more downside next week.
Golds and energy stocks discussed earlier have also generally held up well here, somewhat better than the market overall, despite being counter-intuitive. Indeed the move up may not last, but patient stalking of such opportunities is what gets us in near the bottom of important swings.
In all cases—gold, the broader market, energy—take a little profit, keep some long, and get to break even stops. As its Friday, I only want to carry home positions that have a decent profit cushion built in; the rest I will take profits on and look to re-establish on Monday if need be.
On Gold: The US Dollar continues to show some strength against other major currencies, currently registering a gain of near one-half percent; new positions in Gold stocks should certainly have stops that take this into account - the sooner you get to break even the better.
Patience, protection, and don't expect miracles overnight -- simply repeat as required -- that's all that's needed to ensure the account will keep on growing…
... and many market participants are exhaling "Thank Goodness Its Friday" ...
While Gold has been very strong and the energy sector is overall putting in a not-bad performance (so far), the price action on the broader markets have been pretty weak from about 1pm onward.
OIH and XLE energy ETF’s (and APC, XTO, ECA and the like) have been trending higher intraday following yesterday’s clunk and this mornings failure to clunk again; but in the big picture, in this sector price has merely retraced 50% of the sell off from the range highs (set on the highs of 10/11).
This is usually where sellers come out again – we’d like to see price close well above the 50% level to increase confidence that this may be a bottom worth holding on to. If not… I’ll be splitting my positions in this sector into two pieces and cashing in one half at the close or on weakness prior to that, and holding the other half at break even stops, unless price really weakens in which case I usually elect to exit all and start again fresh on Monday.
In Dow 30/YM a fast and directional trade this morning made a strong surge up to the 62% retracement off the bottom of the 2-day range; and now price is back to the now or never spot:
Again, if price manages to hold the 10240 – 10250 area as new support, again, and close somewhat stronger (10280 or more, above 10300 would be ideal), then the impression being left is one of building support.
We tend to find that unless a move gets going by 3 – 3:10 pm, more often than not, it never gets going, and this is particularly true on a Friday. Tick-tock!