Tuesday, February 15, 2005
Issue Contents:
| 08:31 | The Day Ahead Economic releases and news. |
| 08:32 | Swing Scanner Results Monday February 14th closing data. |
| 08:34 | Market Statistics For Monday February 14, 2005 |
| 08:56 | Market Direction and Internals |
| 09:29 | Swing Trade Setups Featured charts for Tuesday February 15th |
| 12:03 | Intraday Update |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning, on this the 46th day of 2005.
The retail sales headline number for January was sharply off this morning, mostly attributable to a 0.3 percent drop in auto sales. Apparently sales of gasoline remain strong, which we might well have inferred from the continued strength in crude oil prices. Stock index futures remain somewhat above yesterday’s close following the news.
The US Dollar continues to be under some pressure this morning, with the Euro and Pound putting in particularly strong performances so far today.
EURUSD
GBPUSD, which interestingly on the weekly chart is nearing a point of key resistance. Many currencies are going to soon prove if old resistance can become support.
USDCAD breaks down through a rising wedge, usual target is the base of the wedge, in this case an overshoot to the 2004 lows would be target two.
US Market Calendar
- 8:30 am: Retail Sales – Jan.1
- 8:30 am: Empire State Manufacturing Survey – Feb.
- 8:55 am: Redbook – Feb. 12th week
- 9:00 am: Foreign Purchases of U.S. Securities – Dec.
- 10:00 am: Business Inventories – Dec.
- 1:00 pm: NAHB Housing Index – Feb.
Canadian Market Calendar
- 8:30 am: Existing Home Sales – Jan.
- 40th anniversary of the country's modern-day flag
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 U.S. retail sales dip on lower auto sales
Monday February 14th closing data.
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Statistics for Monday February 14, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 511 |
|---|---|
| Symbols in Down Swings | 254 |
| Up/Down Swing Ratio | 2.01 : 1 |
| Advancers | 0% |
| Decliners | 0% |
| Unchanged | 100% |
| Up Bars | 49% |
| Down Bars | 12% |
| Inside Bars | 30% |
| Outside Bars | 3% |
| Close > 20EMA | 51% |
| Close > 50SMA | 52% |
| Close > 200SMA | 65% |
| 20EMA > 50SMA > 200SMA (trend up) | 41% |
| 20EMA < 50SMA < 200SMA (trend down) | 19% |
Market Direction and Internals
The NYSE has been outperforming the Nasdaq by a wide margin, and thus is in a position to tell us a little about investor sentiment as a retest of the 2005 highs, a multi-year high, plays out this week.
NYA – NYSE Composite Index
While new lows have contracted, new highs in this market have managed to keep pace with the first high of 2005 but have not yet expanded significantly. We’ll want to keep an eye on this, as indexes that hit new highs without the support of an expansion in new 52 week highs in individual equities tend to fail sooner than later.
COMPX – Nasdaq Composite Index
Here we have a dramatically different picture. Price is still working on recovering even the 50% line of the decline of 2005.
However, speaking to the positive aspects of this market and chart, we have see new highs begin to expand, and during intraday trade we’ve noted on a number of days that Nasdaq is has been leading the other broader markets higher, on a relative price action / strength basis. We’ve also seen price break down against a (typically “bearish”) rising wedge pattern – such failures often do lead rallies as sellers get trapped. The key to continued price appreciation is whether real buyers step it, not just short sellers covering.
Key here for Nasdaq is to clear overhead resistance and hold above the (approximate) 2100 level, ideally this week.
Trading Plan
Price is pointing up; we’ve been long either for some time or off this last nicely timed entry which fully capitalized on Friday’s price advance. If price stalls much longer we can expect a more substantial retracement of Friday’s price gains – while I may take some additional profits positions established last week, I want to be holding some long with a break even stop in the event that any decline holds above my entry and then continues higher.
My goal at potential major turns is to make what would ordinarily be a one or two day swing trade into one lasting possibly many days or weeks.
Featured setups from Monday February 14, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
Keep this in mind: There were a large number of narrow range bars put in on the daily charts of stocks yesterday; following price contraction comes price expansion – and we hope to the upside here, continuing the direction in hand.
However, the biggest risk here is that markets wiggle up a little at or near the open, only to fail for the rest of the day.
There is no easy way to mitigate this risk – but here are the approaches:
- If the market opens with strength, but not huge strength, wait for the first retracement to show up intraday off a 5 but ideally 10 or 20 minute chart and place buy your buy stops above the retracement, near the trigger value (i.e. do not follow price deeply down into the range of the prior day).
- If the market screams up, there may be no choice but to buy near the trigger value. In this case since our premise is that the market is not pausing, you must place a protective stop near your entry price as soon as possible. If stopped out it may simply be that you’ve misjudged strength and have to lurk above the retracement, but its best to exit, and try again, rather than to hold on only to see price put in a 180 degree reversal.
We’ll no doubt talk about this in TrendVue Trader Talk today.
Entry and Exit Strategies
Entries: Each chart posted includes the TrendVue High/Low indicator in the chart legend, showing the high and low of the prior day. We refer to these values frequently for setting stops, alerts and initial protective stops.
Our trade entry methodology stresses that price should prove to us where it wants to go, consequently all of our setups involve placing entry stop/stop limit orders where a trade will be initiated for us automatically, if price is able to move in the expected direction.
When price does not comply, we evaluate the setup to determine if it is either a) an expanding pattern or b) an invalidated setup. For example, a 3 bar bull flag setup that does not trigger can be followed up the next day with a buy stop above the new 4th bar, provided that price doesn’t invalidate the bull flag pattern.
Exits: Once in a trade, we must place an initial protective stop as soon as possible. Consider this stop your crash stop – an emergency measure which you hope will never get used, but is there for your protection in case you lose all connectivity to your broker or some other unforseen event takes place. The initial protective stop, unless noted otherwise, is always at the opposite end of the bar used to trigger a trade.
For example, if our trade setup for a long trade is based upon a break of yesterday’s high, we will use yesterday’s low as our initial protective stop.
The next task for us, once in a trade, is to find the earliest reasonable opportunity to move stops up. Trade and risk management is a highly personal topic; we can only relate to what works for us. In general, once a trade is substantially profitable, or has started to trend on a 10 or 20 minute chart intraday, I move to a break-even stop immediately.
Once the trade has surivied its first day, we are already on watch to look for our profit exit. Here your personal objectives come into play. A longer-term investor using swing trading techniques to improve entry and exit will tend to give a trade some room. Our recommendation is to use the break even stop until the stock starts to trend (higher highs, higher lows or the reverse in a down trend).
Short term swing traders will tend to use price extension estimates and pre-place exit orders at these estimates. This discussion goes beyond the scope of our daily swing trade service, however we are happy to entertain questions in TrendVue Trader Talk on any subject.
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.
Retracement or Pause in Up Swing / Up Trend
EMC – graced these pages last week, a difficult stock to buy on Friday but there were plenty of others. Buy stop above yesterday’s pause, and we’d like to see EMC clear the prior swing high before considering holding overnight.
CIEN – bull flag following a bounce after the gap fill.
CLS – bull flag
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
TYC – probably best to use the two day low as a trigger, aggressive traders may wish to use the inside bar for a head start.
Special Situations
JNPR – a messy bottom being put in here, with potential selling exhaustion shown over the two weeks. Buy stop just above yesterdays high and price must clear the 2 day high before considering holding.
ANDW – in the “special” section because the retracement has aged; however its filled the gap and leaves a tiny bar to lever a long off of, aggressive traders who like stops only.
Bing! Intraday again we’ve caught a substantial move on the ground floor, meanwhile swing trade entries from last week and earlier in this current rally continue to perform.
ES / S&P 500 have finally joined the YM / Dow 30 index in pushing into the uppermost trading range – regular readers will recall that early in 2005 we got short the market both at a failure of the top of this range and also as price left the bottom of the uppermost trading range, which is by definition a change of trend.
Now that price has regained the uppermost trading range (shaded areas) the plainly obvious target for both these markets is the 2005 highs and the world will be watching. NYA (NYSE Composite pushed through its 2005 high yesterday and is so far continuing that move into new multi-year highs.
NQ / Nasdaq 100 remains the laggard, yet lately it has been a trading vehicle of choice as it presents the largest percentage-gain potential—today up almost three times on a percentage basis as compared to the broader US markets. Today price has reached the substantial resistance where sellers last came out in force on January 19th; if NQ can push through this level and hold then it too stands a reasonably good chance at revisiting the highs of 2005.
Danger or Opportunity?
We can never be sure how long a move will continue, but we do know how to evaluate when a move has started and ended. When the time comes to reverse positions and be more short than long, we’ll know.
For the time being, price points up. We should single out weak performers and consider taking profits (or narrowing losses by exiting such positions if they happen to be on a failing bounce). We should consider taking profits on part of other positions on any singificant intraday failure, but not bail such positions outright unless there is a confirmation of market failure on the daily charts.
Our approach should be to maximize gains by letting working positions run, and if we have any past mistakes to clean up, use these rallies to improve our portfolio by exiting into strength rather than letting mistakes weaken when markets do pause significantly or reverse.
We know where the major targets are, and where sellers may come back again. For now our principle job is to manage existing positions.
Today's transcript.
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