Thursday, March 31, 2005
Issue Contents:
| 08:10 | The Day Ahead Economic releases and news |
| 08:11 | Swing Trade Setups Featured charts for Thursday March 31 |
| 09:08 | Currencies and Gold Heads up! |
| 09:22 | Crude Realities |
| 11:16 | Intraday Update |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 23:57 | Swing Scanner Results Thursday March 31st closing data. |
| 23:57 | Market Statistics For Thursday March 31, 2005 |
Good morning, its Thursday March 31st, the 90th day of 2005.
Personal Income and Chicago PMI releases this morning will be closely watched by traders. In particular, the personal consumption expenditures (PCE) component of personal income will be under the microscope as any surprise jump will bring out the inflation and rate fears anew.
US Market Calendar
- 8:30 am: Initial Claims – Mar. 26th week
- 8:30 am: Personal Income & Consumption – Feb.
- 10:00 am: Help-Wanted Index – Feb.
- 10:00 am: Factory Orders – Feb.
- 10:00 am: Chicago Purchasing Managers’ Index – Mar.
Canadian Market Calendar
- 8:30 am: Real GDP at Basic Prices – 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.
Featured setups from Wednesday March 30, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
- Haven’t quite got my workflow squared away yet, but am making improvements and hope to have swing trades out the evening before on a regular basis, shortly.
- QQQQ longs from yesterday should have break even stops in place. If price comes all the way back there its more then likely this rally is over, but we’ll monitor this intraday and report as needed.
- 10525 is a key support level for YM; if broken and price starts to trend down below there, I will likely look for shorts intraday even while keeping an open mind about the potential for at least a multi-day bounce. Until price rises further today the market remains in danger of failing and continuing the down trend. We’ve been there, done that, and have a T shirt…
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 Range low or Bottom – Reversal
APA – check the oils across the board today, after yesterday’s big sell off in oil and reversal (crude is up 2% pre-market) these names are all likely to push up at least initially. Clearly price has become very volatile here so our goal must be to get to break even stops as soon as possible.
ECA – oil and nat gas – declining wedge as well as retest of range low
CVX – integrated
VLO – sour crude refiner, speciality capability has supported price better here, not to mention narrow gasoline production spare capacity in US
ATML – lots of the low-priced names may see speculation return if the market can hold yesterday’s gains and advance further today. Here’s one that on the weekly has been moving sideways for some time but a local test of bottom gives at least a safer opportunity to attempt a long.
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
CCE – Things go Better With Coke? – carry forward, this is the last day I will stalk it.
Test of Bottom – Continuation
WMT – weak bounce to overhead resistance
Special Situations
QLTI – long – one day only, disclaimer I already own this from lower prices. Sometimes when price makes an exhaustion bottom price will not fully retest the lows – so this harami here presents a 3 inside up scenario, if triggered I would hold only if solidly profitable by days end, ideally closing above Tuesday’s high or higher.
IBM – long – bull flag under resistance. If filled price must push up significantly higher and close strongly before considering holding overnight. Otherwise it will again appear on our short list tomorrow…
We’ve been watching the USD ramp up quickly following the FOMC latest release indicating increased concern over inflation, on fears or expectations of a pickup in the pace of interest rate increases. Every new piece of inflation-related news now affects the dollar more than ever. Today’s personal income expenditures number, in-line with expectations, appears to offer nothing new for the forex market to grap on to, and jobless increases picking up further weakens the bullish case for rates (even if only for today!) so in the meantime technical trading dominates.
Forex chart of the day:
US Dollar Index – price has failed, so far, at the natural point of resistance leading out from the rising wedge earlier this year, and now a new down swing has started. Gold will probably be a beneficiary, as may Crude and therefore oil stocks, and currencies such as Euro, Yen and Pound are likely to get more lift against the USD.
USDJPY, our last chart of the day where we pointed out the test of range top underway, has failed so far. First targets below marked – traders should move to break even stops soon.
Both the Euro and Pound are bouncing up to resistance, and as a result I doubt this move down in the USD will be highly directional, but just in case I plan to exploit the start of the move with trades in Forex, Gold and Oil and get to break even stops at the earliest possible opportunity.
Crude continues to confound most analysts it seems, as they are still talking about prices much lower – one big firm even making a “prediction” out years into the future that crude will be in the low 30’s – even as price continues to trend higher.
Analysis 101 – an up trend is a series of higher swing highs and higher swing lows:
Crude, Continuous Contract – Daily – the definition of an up trend, so far unbroken.
Its not over until its over. What we look for at a chance of trend is for a range to develop (check) and for price to fail to hold the bottom of the range and start to trend below.
Despite growing inventories of raw crude, price plummeted and then rebounded stronly intraday. Stock markets yesterday seemed not to note this reversal, but no doubt will today, as price is up pre-market almost 2%.
Summary of Weekly Petroleum Data for the Week Ending March 25, 2005
U.S. crude oil refinery inputs averaged nearly 15.2 million barrels per day during the week ending March 25, up 222,000 barrels per day from the previous week’s average. Refineries operated at 91.1 percent of their operable capacity last week. Gasoline production decreased slightly last week, averaging nearly 8.2 million barrels per day. Distillate fuel production increased slightly last week, averaging 3.9 million barrels per day.
U.S. crude oil imports averaged nearly 10.6 million barrels per day last week, up 298,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged over 10.2 million barrels per day, which is 288,000 barrels per day more than averaged over the comparable four weeks last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) averaged 0.9 million barrels per day last week, while distillate fuel imports averaged 258,000 barrels per day.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 5.4 million barrels from the previous week. At 314.7 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories dropped by 2.9 million barrels last week, but remain above the average range. Distillate fuel inventories fell by 1.1 million barrels last week, and are in the lower half of the average range for this time of year. While most of the decline was in low-sulfur distillate fuel (diesel fuel), high-sulfur distillate fuel (heating oil) also declined. Total commercial petroleum inventories moved up by 5.5 million barrels last week, and remain in the upper half of the average range.
Looking at the raw data (also available in the EIA site) its clear there is a ton of oil being pumped into the system. Refinery capacity is one real issue for gasoline consumers; the other primary issue is that demand continues to grow week in, week out. So while stocks are in the upper half of average ranges for this time of year, demand is above average and shows no sign of slowing.
There’s a report out today from Goldman Sachs also contributing to oil fever:
“We believe oil markets may have entered the early stages of what we have referred to as a “super spike” period [rising as high as $105 a barrel]—a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return,” Goldman’s analysts wrote.
In addition to stocks singled out in today’s Swing Trade Setups, we could consider the ETF’s for the sector:
XLE – Energy ETF
OIH – Oil services ETF – here I would prefer to trade individual names, perhaps RIG:
RIG – stuck in congestion but since its aged now I may be tempted today to trade above yesterday’s down bar.
As noted the “surprise” rise of crude against seemingly bearish (for crude) news has put a damper at least temporarily on stock markets.
YM – Dow 30 Futures Intraday
IF prices push back above the 10545 range I’ll be looking to establish new longs – the likely scenario will be a retest of the day’s high and buying the first retracement above the day’s high.
At this point I’m short YM just a few points off the high of day and plan to hold that position with a break even stop while this chop plays out. Yet I am holding new longs (QQQQ, QLTI and others) from yesterday, also with stops at break even.
Rather than jump to conclusions as to whether this rally is over or not, my approach is to let the market decide for me – as we always should. In this case if the intraday support at the current low of day fails, my new short will work famously and eventually my new longs will stop out, and we’ll have a new, down, direction to lean into. And if not, the longs will win and with a little luck the rally will extend for several days at least, rising into all the overhead resistance which has built up over the past couple of weeks where we will then again be faced with selling decisions.
CLK5 – Crude futures
We see here that price made an impressive reversal yesterday following the EIA report – ironically, stock markets also made an impressive reversal the day before. The nature of today’s stock market is that both crude and stocks do not rise in tandem for long before the traditional inverse relationship shows up one again – so one “tell” for us is watch how price handles the gaps below and above price here on the Crude contract.
As noted in today’s Crude Realities, crude has now formed a classic range and found support above the $53 level. It may just be that crude has a support level far higher than the common expectations on the street…
Today’s Strategy
For the balance of today we can expect much grinding away of price while the market decides whether the big pop in crude oil today is a one-day affair or not. I’m going to keep my box-the-market trades going as long as possible, with break even stops on YM and QQQQ. I will also continue to take long-side trades on stock specific setups as long as they make sense, until such time as a bona fide breakdown of the broad markets is evident.
Today's transcript.
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Thursday March 31st closing data.
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Statistics for Thursday March 31, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 476 |
|---|---|
| Symbols in Down Swings | 282 |
| Up/Down Swing Ratio | 1.68 : 1 |
| Advancers | 52% |
| Decliners | 45% |
| Unchanged | 3% |
| Up Bars | 63% |
| Down Bars | 15% |
| Inside Bars | 13% |
| Outside Bars | 5% |
| Close > 20EMA | 52% |
| Close > 50SMA | 39% |
| Close > 200SMA | 57% |
| 20EMA > 50SMA > 200SMA (trend up) | 28% |
| 20EMA < 50SMA < 200SMA (trend down) | 29% |