Monday, October 24, 2005
Issue Contents:
| 08:35 | The Day Ahead Economic releases and news |
| 08:57 | Trendvue Trader Talk Schedule This Week |
| 09:25 | Market Direction The Big Picture |
| 09:28 | Swing Trade Setups ETFS |
| 09:39 | Futures Key Levels |
| 09:49 | Energy Watch Oil is down. So... |
| 10:58 | First Hour Update Initial targets hit... |
| 16:05 | ZZZ... but a profitable sleep. Hitching rides for as long as it lasts. |
Good morning, today is Monday October 24th, the 297th day of 2005.
No economic news of note is on today’s calendar, and there are no major reports on deck until Thursday this week, so corporate reports and external events will take the stage for the early part of this week. Heading into next week, traders will be looking toward the week following and the next FOMC interest rate-setting meeting.
Between hurricanes and quakes and bird flu and CIA inquiries and sabre rattling over Syria and trade wars and… there are plenty of external news stories which could be moving markets. Most likely the solid move in oil below 60, apparently attributed to Wilma heading along the track that has been forecast for well over a week now (go figure), will be the lead catalyst today.
In Europe markets have been trading solidly higher for most of the session, led in part by optimism on BP’s earnings, due out tomorrow.
Market Statistics for Friday October 21, 2005
| Symbols in Up Swings | 377 |
|---|---|
| Symbols in Down Swings | 297 |
| Up/Down Swing Ratio | 1.26 : 1 |
| Up Bars | 25% |
| Down Bars | 36% |
| Inside Bars | 31% |
| Outside Bars | 4% |
| Close > 20EMA | 65% |
| Close > 50SMA | 28% |
| Close > 200SMA | 48% |
| 20EMA > 50SMA > 200SMA (trend up) | 18% |
| 20EMA < 50SMA < 200SMA (trend down) | 32% |
Good morning everyone – I’ve got good news and bad news to report today; the bad news is that Trader Talk will have to be off the air today again, and possibly tomorrow as well. I’ll do everything I can to see that the interruption is as short as possible, and will continue to publish commentary and market direction notes as needed through the day.
The good news is there is indeed light at the end of this tunnel, and, so far, it doesn’t appear to be a train speeding at me. After a weekend-long marathon session of work, much has been accomplished and I am confident that, with a little more time during daylight hours this week, we’ll have a solid solution and base for the future, well tested and ready to roll out shortly.
It may be our machine outage last week was a silver lining in the storm, as the additional workload brought about by the issue caused me to finally realize I can’t work 22 1/2 by 7 and get everything done in a timely, quality fashion.
If anyone has individual concerns or subscription issues, rest assured that I shall look after any requests promptly.
Thank you all for your patience during this time – I shall be coming up for air very soon here…
Looking back at last week we must first observe that price has been holding either at or just above (Nasdaq and NYSE composite indexes), or just under (S&P 500 and Dow 30), the 50% retracement of 2005’s rally:
Major Indexes – Daily
The longer price holds weak here at these levels, the more likely price is to head even lower. With a FOMC interest rate policy meeting coming up next week, it seems likely the market will attempt to move in advance, however if prices do not climb above Thursday’s high here soon (by tomorrow), we’ll likely be stalking the short side in days to come.
At this point I’m leaning ever so slightly towards a positive bias – it seems likely price will at least try to rally to Thursday’s high. On the weekly charts we see additional reasons for the technically inclined to be watching this juncture very closely indeed:
Major Indexes – Weekly
With all the major indexes having pulled back to their 50 day moving averages and long-term trendlines, we know that soon – perhaps not soon enough for impatient folks, but soon – the longer term direction of this market will be revealed to us. As price has made a solid break below the trendlines in three of four for markets, this is a crossroads moment for the market.
In addition, lets not forget Nasdaq has been lagging for two years now and failed an important test of top weeks ago, and the Dow hasn’t exactly been a stellar performer since the start of last year either.
Sometimes the market just has to rally, because the alternative is just too ugly to contemplate, and for that reason I’ll be open to ideas on the long side even though the prospects are not overwhelmingly positive here. If support starts to break down across the board (at the two week lows) there will be plenty of time to get short and probably plenty of time to remain short.
One final observation – consolidations, such as we are seeing play out near the 50% retracement of 2005’s rally, tend to take 7 – 12 sessions to play out. This particular consolidation is nearing old age – history tells us we can expect a significant move here this week, early next week at the very latest.
I shall be looking at stocks this morning, but an initial peek at many names has convinced me to use ETFS for exposure (short or long) today.
QQQQ – Nasdaq 100 ETF – this market has held up far better than all the other major indexes; I’m stalking this on the long side, looking for any setup that promises to push price above the two day high or keep it there.
IWM – this really could be stalked long too – look for setups that appear at the top or bottom of Friday’s range and be ready. I’ve chosen it as a short candidate primarily because price is solidly below resistance just overhead.
Reminder: This is an extremely busy week for corporate earnings. Check your holdings before the close – don’t be caught surprised!
Key here is whether price can break above and hold above Friday afternoon’s high ~ 10310:
YM – 5M
Certainly if price heads back to 10225 area I shall be looking for retracements (weak bounces) to sell; I might indeed flip to leaning on the short side if price pulls below 10280 here in the early going, but not until:
- The gap fill is attempted, and,
- Price tries to rally off the gap fill, if indeed one shows up
I’m more inclined to stay out of the way until the gap fill attempt starts to play out.
Crude and Natural Gas moved down in some bizzare relief move this morning, supposedly because traders are thankful that Wilma went exactly where the National Hurricane Center had been forecasting for better than a week.
Imperial Oil reported last week and is so far holding on to gains.
Lets see if the oil names can move higher despite bad news – we always want to be watching a sector as to how it performs when the chips are against it, and energy has the odds stacked against it today… these can be interesting points of reversal.
Pick any (and more than one) of the regular names – APC, ECA, XTO, MRO, TLM as well as some services companies BHI, ESV, RIG, DO (their charts are all so similar) and the like and look for intraday opportunities (one is playing out as I write this, after initial weakness).
XTO – risks are there… no doubt about it.
APC – I’d like to see price hold above the mid point of Thursday’s bar (same is true for most of this sector)—and if so there will be additional intraday trading opportunities in the group today or tomorrow.
Remember: This is stalking a surprise move, a counter-trend trade (long into what has been horrible weakness) so use an abundance of caution, take some profits along the way and get to break even at the earliest opportunity.
Initial targets in both the broader market as well as energy have been hit – lets start with energy first:
OIH service holders ETF
XLE – Energy SPDR ETF
XNG – Natural Gas Index
Following this morning’s small gap down which did not break Friday’s low, we’ve seen price in the energy sector indexes and ETFs move solidly up; with price now either at resistance, or pulling back to what was resistance and may be new support, we’ll have a second opportunity to get long here shortly and also a place to locate at least partial profit taking stops on any positions entered early this morning.
Taking a little profit along the way is important in this sector, at this time – these are counter trend-trades, and, even if price manages to make these levels here now as new support, there remains much overhead resistance for price to work through.
Dow / Futures
Dow 30 / YM Futures – the morning gap never did fill at the open, but nor did buyers really step in and so far price has stalled at nearby resistance. If real movement can’t be had off the open, when liquidity is at its peak, then, especially when an opening gap is left unfilled, we are never are too surprised if price later weakens to attempt a gap fill.
Market internals have been generally positive for most of the morning, so on any pull back to fill the gap I shall be stalking long opportunities provided the retracement stalls out near the gap.
If price breaks below 10240 and holds for any great length of time then it will be time to either move to a short bias or stand aside until a test of Friday afternoon lows is made.
ZZZ... but a profitable sleep.
Its funny – the best rally days are often snoozers for traders, for once you catch the move, the only thing to do is hang on. Scalpers do not do well in such times, as their tendency is to bank out a quick profit and then there’s the chop – certain to follow in all but the most powerful of rallies – where they’ll more than likely give up any gains.
We knew today had real potential – a true do or die moment, when the market just had to go up, or else!
Right on time…
Experience tells us we’ll see chop after the initial move, and, if buyers are really coming back, the close will see a pop out of consolidation. The only way to deal with this sitation is to keep all or at least 1/2 of the early morning position, and do nothing once that limited profit taking has been done.
Taking it all off the table simply invites the temptation to try to get back in, and what will almost always happen, even to the best traders, is you’ll give up chunks of your earlier profits trying to guess when the market will again break out of the consolidation.
Much easier to be a sleepy trader and do nothing; at least if the market fails to head higher, a trailing, but loose, profit stop on the balance of your position will net you some more profit and save on all those commissions which would have been lost in the chop.
Where Next?
The market moved up sharply into the end – we’ll probably see a retracement in the morning, and the key question for tomorrow is do price levels at either 10380 (frequently been in our radar lately) or 10360 (atop this afternoon’s consolidation zone) become new levels of support.
They must, by the close tomorrow, to provide the reassurance buyers would like to have to pile back in. If not, there are a million and one reasons we can find on the chart for the market to head lower, not the least of which is this big head and shoulders pattern on the 15M chart. My bias is still up at this point.