Monday, March 7, 2005
Issue Contents:
| 08:39 | The Day Ahead |
| 08:41 | Swing Scanner Results Friday March 7th closing data. |
| 09:27 | Swing Trade Setups Featured charts for Monday March 7th |
| 13:00 | Market Update |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning – its Monday March 7th, the 66th day of 2005. The week starts off rather quietly on the economic news front, building as the week goes on with the Federal Reserver “Beige Book”: on Wednesday and the dollar-moving Trade Balance report on Friday. In the meantime, company earnings reports and guidance take centre stage.
The US Dollar regained some of its steep losses against many currencies Friday, but it remains to be seen if the sell off at the close of last week marked a turn around event or a sign of future (continuation) direction. Its probable that we’ll have to wait until Friday’s Trade Balance report to find out.
US Market Calendar
- 3:00 pm: Consumer Credit – Jan.
- 5 & 10-year note auction announcement
- 3 & 6-month T-bill auction
Canadian Market Calendar
- 8:30 am: Building Permits – Jan.
Statistics for Friday March 4, 2005
| Symbols in Up Swings | 508 |
|---|---|
| Symbols in Down Swings | 256 |
| Up/Down Swing Ratio | 1.98 : 1 |
| Up Bars | 53% |
| Down Bars | 18% |
| Inside Bars | 19% |
| Outside Bars | 5% |
| Close > 20EMA | 70% |
| Close > 50SMA | 59% |
| Close > 200SMA | 65% |
| 20EMA > 50SMA > 200SMA (trend up) | 44% |
| 20EMA < 50SMA < 200SMA (trend down) | 21% |
Its been a while since we’ve seen most stocks making “up bars”. With major indexes regaining the 2005 highs we can be sure the emotional stakes are high here, with traders ready to bail the market if any weakness shows up. We’ve seen that movie before – perhaps this is the ‘Directors Cut’ with an alternate, surprise, ending?
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.
Friday March 7th closing data.
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Featured setups from Friday March 4, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
- Be sure your new holdings have reported recently before deciding to hold…
- Premarket Nasdaq futures have trended somewhat more positive than Dow 30, FYI
- Keep an eye on golds – those that did not move up on Friday we have to wonder why not, as the US dollar made a large move down. Upgrades to some in the sector (ABX got a hefty upgrade this morning) may keep some floating, but it won’t be a surprise to see these drift a bit until Friday, which the US $ is likely to do as well.
- With an important test of top playing out in the non-tech side of the market we have to be vigillant; ensure our profit taking stops are in place; trim weak performers; be ready to act if opportunity long or short presents itself.
- In Trader Talk this morning we’ll take a tour within technology and uncover the strongest and weakest sub-sectors within.
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
CK – despite a small “dark cloud cover” 4 sessions ago, this is a bull flag. Dropping from my long watch list after today.
GNSS – in an uptrend, demand a strong close to hold.
SAPE – barely an uptrend forming here but up at resistance and a Pru puts it at outperform on new coverage. One to watch now or in the future.
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.
Test of Bottom – Continuation
BSX – follow this one for a few days, a conference this weekend may give this a boost today, perhaps even a buyable bottom-forming boost, but in the meantime we should stalk the short side and/or look for a failed bounce (bear flag) to form here. Aggressive long-side traders can consider buying the bounce provided you are ready to bail on any weakness…
Special Situations
QQQQ – long or short – too bad the broad tech index is lagging so much, as it would be nice for the market as a whole if QQQQ stocks were rising as well. We have a bear flag triggered and a narrow range bar above which to position a long – its not a bad setup but probably a “last chance to dance” opportunity for tech. Pay attention to this one.
On the short side, if markets weaken appreciably, we can’t help but put Nasdaq in our sights.
ADSK – Long (first) – a big triangle, rightfully can go either way and these often will head both directions before clearing out. I’m going to stalk this on the long side because the last pull back remained above the base of the tall up bar back 7 sessions ago.
Our focus on Nasdaq today pays off – for most of today Nasdaq 100 has delivered 3, 4 times that of the S&P 500 or Dow 30. Yet even with this good news there lurk a few concerns:
- Given the breakouts to new 2005 highs in S&P 500 and Dow 30, follow through is important. Very often price will retrace to the breakout level and then attempt a new upleg from there. We are still waiting for this first pull back in larger time frames so we simply do not know how markets will handle this.
- NYSE has been outperforming for some time; today NYA (NYSE Composite) is trading in a very narrow range and generally has failed to show strength leading to two possibities: a) the broader market is getting ready to retest the prior highs as discussed; b) there is significant sector rotation taking place. Its certainly possible technology – finally and after much selling over many weeks – is at least on benefactor. We’ll be keeping an eye on this throughout the week.
Market Potential
Using the broader S&P 500, we can estimate the near term market potential by extending price to an amount equivalent to the range depth of the past few weeks—this brings the ES contract to approximately 1245.
The Dow is on track to hit the T1 approximately 11040, a target we first outlined several weeks ago.
In the bigger picture, the large “cup and handle” formation gives us a price extension target approximately 500 points higher than the prior range high, leading to approximately 11400 as a T2 major target.
Important: these are estimated targets not price forecasts. While the difference in meaning may appear subtle, it is not.
Even if these price targets bear out, the path is unlikely to be a straight line. How traders handle the first major retracement that shows up will tell us much about the market for the next quarter. Stay tuned…
Today's transcript.
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