Tuesday, November 1, 2005
Issue Contents:
| 04:49 | Waiting on the FOMC |
| 09:36 | Market Direction At the open |
| 09:58 | The Day Ahead Economic releases and news |
| 10:23 | Trade Ideas A few to ponder |
| 13:06 | Wound up like a spring zzz, the usual pre-FOMC price action. |
| 14:23 | FOMC Statement November 1, 2005 |
| 15:59 | Post FOMC ... zzz |
All night debugging sessions are starting to get tiresome, and clearly are not very productive, so I’m going to pack it in for now but not without first making a comment about Monday’s outcome and today’s session.
First of all, yesterday price managed to push above key resistance and hold—the two day move up which started on Friday has brought major indexes back to the point where market participants now have some optimism, where just two weeks ago there was little to be found.
Once the opening moves off this morning’s economic news have been made, it’ll be time to hunker down, be sure profit stops are in place, and generally reduce activity. We don’t want to be making big bets in advance of an FOMC meeting – in general I do as little as possible until well after the afternoon announcement. Certainly as zero-hour nears (2:15pm today) I stop trading altogether – usually a full 1 1/2 – 3 hours before the outcome.
Once upon a time, price would make wild swings—10, 20, 30 points on the Nasdaq, and 50 – 100 points or more on the Dow index—above and below the current market price, and all of this carnage would take place in a matter of seconds (milliseconds even). Often such swings would start before the announcement was made. While we’ve not seen such volatility in a while, no doubt one of these days some unfortunate traders will get caught in such a situation.
It won’t be us! When the risk of significant adverse price movement is there, we should focus our attention on preservation of capital, not trying to force a trade. There is always another day to trade…
Right at and after the close yesterday afternoon, price dumped very quickly, filling the gap left open yesterday. It sure takes a motivated seller to take such a step; will they get roasted now?
YM, 5M
We should be stalking any retracement opportunity provided price generally holds near the 10400 level; depending on price action today, I’ll still be leaning to a long (more up) bias while price remains over 10350. here’s why:
YM, showing fibonacci scale against the decline from early October – clearly the faster price manages to hold 10400 – 10410 as new support the better, and the real goal is to see price close well over 10450 by day’s end or by tomorrow.
Keep in mind that very frequently after a FOMC news release price heads in directions that are not followed up on the following day – things are not always as they seem in the chaos which often accompanies the parsing of FOMC press releases. We shouldn’t hold positions to a loss if the market moves against us; nor should we exit the day with a preconceived notion of what will happen tomorrow.
My usual plan of action leading up to the release is to do as little trading as is required to pay the bills for the day, and sit on my hands for the rest of the time.
Today’s key report is of course the latest FOMC decision, and even more importantly, the statement that accompanies it. At 2:15 pm today on the FOMC web site you’ll find today’s statement for all your word parsing fun. The ISM manufacturing index is also a key, frequently market-moving, report – heads up.
US Market Calendar
7:45 am: ICSC-UBS Store Sales
8:55 am: Redbook Retail – Oct. 29th week1
10:00 am: ISM Manufacturing Index – October
10:00 am: Construction Spending – September
2:00 pm: Daily MMS Gulf of Mexico Shut-in Report
2:15 pm: FOMC Announcement
4:00 pm: Auto Sales – Oct.
Canadian Market Calendar
- No scheduled economic releases
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 Chain store sales rise: Redbook
Before too much time passes and the entire market moves into sitting on hands mode:
YM – post ISM release – if there’s a long trade coming up out of this slow decline it will be here; now that so many bars have played out we’ll expect price to pop up, fail a little, and above that pull back provided price is near 10440 I’ll then look for a long. I am not going to chase price in chop more than once or twice today.
Energy
Also of interest, the energy sector is making noises that it may in fact be able to hold on to recent gains. If like me you’ve been holding some of this sector from the panic lows of the prior week(s), you’ll want to keep a close eye on 60 or 78M charts, looking for support to hold near the line but not quite at the lows of Oct 28:
Oil service stocks
OIH Oil service HOLDRs ETF
Natural gas stocks – harder hit due to the commodity, but NG price declines may level off here soon, particularly if CL makes, and holds, on a 2B or other test of bottom:
CL – daily
The chart says it all:
No surprises from the Fed but the language seems to be a signal that they’ll do what it takes to support the economy, and that could mean a pause next time around if output and employment are still showing persistent effects from the weather disasters this year.
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4 percent.
Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment. However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas. The cumulative rise in energy and other costs have the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.
The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
In short: This minor change in language looks bullish; but it may take a day before the market reflects this. Only aggressive traders should be acting on setups found soon after a release. As the afternoon develops, should price manage to hold above 10460, we will be encouraged to dabble a bit on the long side, with, as always, suitable protection in place in case of a late day sell-off.
YM, 5M: and in-between chop, largely untradable volatility.
FOMC release days are either full of wild swings or lull you to sleep. Most folks are best off passing completely and going golfing or whatever turns your crank.
YM in the big picture does reinforce that support levels are rising progressively; price action today remains supportive of more up, so provided no corporate reports turn the market sour overnight, we can probably expect 10450 to become new support tomorrow or later this week.
While price action is zzz today, we should remember that out of range contraction comes range expansion. This would suggest if continuation of the move underway is coming up soon (tomorrow or Thursday at the latest) we should see price move up another 150 or so points by week’s end.
There’s no action that needs to be taken now… we need price to prove itself by rising from these levels; but what we should so is look at our favorites plus the scans and locate stocks that moved down just a little today, and be ready for stocks from that same group which are able to move up tomorrow.