Friday, February 4, 2005
Issue Contents:
| 08:50 | The Day Ahead Economic releases and news. |
| 09:14 | Swing Trade Setups Featured charts for Friday February 4th. |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning. on this the 35th day of 2005.
Before the open stock index futures have softened somewhat following a below-expectations employment report1 although prices generally are marginally higher than Thursday’s close.
Fed Chairman Alan Greenspan is speaking at a conference in London at this moment; the text of his speech is available here.
US Market Calendar
- 8:30 am: Employment Report – Jan.
- 9:45 am: University of Michigan Consumer Sentiment Index – Jan. F
- 8:45 am: Federal Reserve Chairman Alan Greenspan to speak at session on the international economic system at the Advancing Enterprise 2005 conference, in London.
- 10:30 am: Weekly Leading Index for the week ended Jan. 28
Canadian Market Calendar
- 7:00 am: Employment Report – Jan.
- 10:00 am: Ivey Purchasing Managers’ Index – Jan.
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 Treasuries Rise After Economy Added Fewer Jobs Than Forecast
2 Canada Jobless Rate Stays Steady at 7.0 Pct
Featured setups from Thursday February 3, 2005 closing data symbol scan
Jump to: Long Setups
Notes for the Day
It all comes down to this – can the market pick its feet up quickly after the first retracement in the current move up from January’s lows? Sometimes the first pause is merely a single day, so today we’ll first want to be ready on the long side just in case buyers are willing to step up right away.
We’ll need to be cautious of being stopped in just above yesterday’s highs, only to see price weaken later in the day. Its an acceptable risk to take, but that doesn’t mean we want to take the risk blindly. Where possible buying just above the first intraday retracement after price triggers at the alert level should mitigate risk to an acceptable level – we will tend not to be stopped in if the market can’t rebound off that first retracement.
I shall be posting a number of other stock setups in the first hour of trade this morning, including short setups, in TrendVue Trader Talk.
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
ETF’s are a good way to gain exposure and reduce single-stock risk.
XLB Basic Industries ETF
SPY S&P 500 ETF – single down bar in still intact upswing on the daily chart. Note that in the big picture weekly chart the 2005 decline has, so far, kept intact the up trend that started in mid-2004.
IWM – Russell 2000 ETF.
QQQQ – Nasdaq 100 ETF, presents the most cautionary tale, as the important question of the day is whether this rising wedge resolves fully to its classic target – the base of the wedge – or moves up directly from here, causing a “wedge failure” which would no doubt fuel a decent advance higher. Using the let price prove itself to us approach we promote, we don’t need to be brave and act beforehand, we simply have to be open to the idea that the wedge may fail to hit target and be ready just in case.
GE – on bar two of its retracement, caution here as the gap below remains a tempting target for sellers, but we should also note that not all gaps are filled. A stock with an unfilled gap that acts strongly can also be a good indicator of future strength.
Test of Top – Continuation
DOW (one of those Basic Industries…)
Today's transcript.
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