Wednesday, February 9, 2005
Issue Contents:
| 08:46 | The Day Ahead Economic releases and news. |
| 09:26 | Swing Trade Setups Featured charts for Wednesday February 9th. |
| 10:21 | Early Going |
| 11:20 | First Downside Target |
| 11:45 | Crude Realities |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning, on this the 40th day of 2005, a day marking the end of HP CEO Carly Fiorina’s reign at that Dow 30 component.
“While I regret the board and I have differences about how to execute HP’s strategy, I respect their decision, HP is a great company and I wish all the people of HP much success in the future.” Ousted former CEO Carly Fiorina
It remains to be seen if this Carly Factor will be a sufficient catalyst today to propel the market forward, although pre-open, futures had been drifting down slightly until the news release caused a nice little spike higher. Clearly this news affects HP primarily so we would not expect a rally on this news to have lasting effect this morning, but sometimes a little news is all that is required to kick start other stocks.
US Market Calendar
- 7:00 am: MBA Purchase Applications
- 10:00 am: Wholesale Trade – Dec.
- 10:30 am: EIA Weekly Petroleum Status Report
- 11:15 am (ET): Federal Reserve Governor Edward Gramlich addresses speaks on U.S. economic trends at a symposium in Denver, Colorado.
- 1:00 pm: 5-year note auction
- 7:15 pm: New York Federal Reserve Bank President Timothy Geithner speaks at the Economic Club of Washington .
Canadian Market Calendar
- No scheduled 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.
Featured setups from Tuesday February 8, 2005 closing data symbol scan
Jump to: Long Setups | Special Situations
Notes for the Day
Be careful of the Carly Effect fading quickly after the open. I will look for some short candidates in the next hour.
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.
Test of Bottom – Reversal
Retracement or Pause in Up Swing / Up Trend
XLE Energy ETF – note comments on XEG:C elsewhere.
OIH Oil service sector ETF
ATML still looks like it wants to go up – and since its held the 50% line on that tall up bar, it may yet be worth another attempt.
Test of Top – Continuation
XIC:C (TSX) TSX 60 ETF classic retest of top with a convenient down bar to capture a move up.
XSP:C (TSX) S&P 500 Tracking ETF – you’ll note that its actually retesting a top here even though the S&P 500 is not – this is the currency effect. For Canadian traders, a rising US$ and rising S&P makes XSP a good vehicle.
Special Situations
XEG:C (TSX) Energy ETF – this rising wedge may prove not to resolve to the mean ( base of the wedge ) so a long could be attempted here but be aware of the risk – energy has been rising in an almost parabolic fashion lately even as Crude continues to pull back.
XGD:C (TSX) Gold stocks ETF – lets be honest, Gold looks terrible and the US $ continues to rise – there is yet no reason to get excited in this sector but since a test of bottom is here lets at least be aware of it and ready to act if something should develop. More likely a weak bounce should be shorted than bought long…
BGO – most charts look terrible and BGO is no exception but offers a “piercing line” possible reversal here.
ELD – has a ledge, use the three day high as an alert here and be cautious if the trigger is hit.
A weak open so far – and some reinforcement to the idea we’ve been talking about that this move up does not appear to have the wherewithall to directly continue into resistance overhead.
As a swing trader I’m not keen to give up outsized profits made in a very short period of time, particularly when price has bumped right up to significant resistance.
I tend to take profits along the way and hold some for a longer period, trading in and around a core position. Since the potential here for at least a full day’s retracement is relatively high, I am booking profits on all outstanding index-related futures holdings (highly leveraged), but holding on to at least 1/2 of my ETF positions.
10:00:06 Mike: So we are still working on the “direct continuation or not” scenario. We know this is significant resistance; we know price pushed higher quickly; we know ADX is starting to get stretched in the really big time frames
10:00:34 Mike: And we know that price has stalled for two days and now working on a third so far. The direct move up is running out of time.
10:06:34 Mike: 1531 SELL STOP on my NQ long position from Friday.
10:06:40 Mike: I feel like booking profits.
10:11:31 Mike: NQ profits booked. I’m going to exit Friday’s YM position here too shortly
Now I’ve flipped on a short of YM with a break even stop already in place. The odds that this is “the” break down, good for at least a whole day or more of trade, are relatively low, but the opportunity was there.
If this test of the multi-day low manages to pass somehow, there will be other opportunities to re-enter long positions.
Our sense that the market was running out of time appears to have been ideally timed, and already COMPX / Nasdaq has hit its first downside target, the rising trendline. This often is a point where sellers get “trapped” and price reverses – far too often sellers will locate stops near such trendlines, and buyers are just as guilty on the way up as well.
Our approach actually exploits this with a much safer strategy to deal with trendline breaks—wait for the break, and then stalk any retracement which shows up.
In this case we want to see if a sellers trap forms here, and more aggressive traders will be looking for any signs of a viable intraday long setup near the trendline break area. Sellers too will be looking to see if a weak bounce forms following the trendline break, and they will try to exploit such a situation.
[wandering off topic]
Speaking of trendlines, a tangental thought: why do sloping trendlines have any meaning? Some analysts put a lot of effort into trendlines that run on for days or decades, and frankly, it does not make any sense at all. People do not earn or lose money along a slope, they react to hard dollar or percentage changes which occur on a purely vertical scale.
We do draw trendlines – all the time – mostly in shorter time frames (intraday, days or several weeks) but we do so primarily because we know other people are looking at them and we want to locate areas where we can exploit predictable human behaviour. We also draw trendlines to identify where ranges and patterns start, and finish, but that is the subject for another column.
[/end wander]
We should get a clue here soon as to whether this becomes a more serious pull back or not. Typically in a strong market, price will not retreat any lower than approximately the 50% level of a tall up bar, this general observation is good for picking out first targets, or for understanding where support ought to come in.
The next location we look to see support come in is the base of the tall up bar, marked as such. If that suppport fails to hold today or in the coming days, then the next target will be a point roughly 50% of the distance between the major swing high and low – on COMPX that’s approximately 2045 – 2050 – not all that far away.
Unless price can regain today’s high in the coming days we’ll have to stay more defensive on the long side.
Lets dive into the crude and oil picture here – this morning we had a number of long swing candidates related to the oil sector show up in our scans – given how far price has run in many of these names it does make sense to trade a little more defensively, particularly when establishing new positions at these levels.
This week’s petroleum status report helped support price once again, showing demand remains strong:
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) declined by 1.0 million barrels from the previous week. At 294.3 million barrels, U.S. crude oil inventories are around the middle of the average range for this time of year. Distillate fuel inventories decreased by 3.0 million barrels last week, and are in the lower half of the average range for this time of year. Total motor gasoline inventories rose by 0.5 million barrels last week, and are in the upper half of the average range. Total commercial petroleum inventories fell by 5.0 million barrels last week, but remain in the upper half of the average range.
Total product supplied over the last four-week period has averaged nearly 20.9 million barrels per day, or 2.2 percent more than averaged over the same period last year. Distillate fuel demand over the last four weeks has averaged nearly 4.4 million barrels per day, or 0.3 percent above the same period last year. Motor gasoline demand averaged 8.8 million barrels per day, or 1.5 percent above the same period last year, while kerosene-type jet fuel demand is up 0.8 percent over the last four weeks compared to the same four-week period last year. More >
Resulting in price moving over $1 today:
But more importantly, so-far reconfirming support:
Again the mid-point of a tall up bar helps to identify where support may come in. This also happens to be the 50% retracement of the rally in crude from December’s lows.
What seems to be consistent from the weekly reports is that demand remains strong, which would suggest that prices will remain elevated since any disruption to supply will have a magnified effect. Last year, prices remained high as supply itself was insufficient to fully carry the market through peak periods, further complicated by weather related and other supply distruptions. Has the market fully factored this in for this year?
Today's transcript.
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