Wednesday, April 13, 2005
Issue Contents:
| 09:15 | The Day Ahead Economic relreases and news |
| 09:29 | Dollar and Gold Update |
| 13:55 | Market Direction Update Ooops, we did it again... |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 20:56 | Swing Scanner Results Wednesday April 13th closing data |
| 20:58 | Market Statistics For Wednesday April 13, 2005 |
| 21:37 | Dollar and Gold Update You'll want to be ready... |
| 22:19 | Swing Trade Setups Featured charts for Thursday April 14th |
Good morning, its Wednesday April 13th, the 103rd day of 2005.
Disappointing retail sales figures for the week1 have knocked stock index futures back a marginal fifth of a percent. To put this in perspective, following the report the Dow futures dropped about 10 points. Futures traders know the Dow futures can move up and down 10 points in seconds during normal trading hours – so this pull back means little in the context of yesterday’s surprise reversal.
Signs of weaker consumer spending may damp speculation that inflation is quickening. Even as inflation risks are ``now tilted a little to the upside,’’ Fed policy makers said ``a degree of economic slack apparently remained’’ and an ``accelerated pace’’ of rate increases is not necessary for the time being.
``You’d probably see yields come down a little bit’’ in the event the retail sales report is weaker than expected, Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York, said before the report. ``It might mean the Fed would keep raising rates for now, but would stop sooner rather than later.’’1
Crude is off another 1% before the open here, currently trading around 51.30. With Crude off near 10% since its recent highs, but the broader stock market up very little over that same period, its clear that more than oil is weighing in on investors and traders.
With little in the way of market-rocking economic news until Friday now, traders have little to watch for clues but market price action itself. It remains to be seen if the surprise reversal, sparked by the release of the March FOMC meeting minutes, will hold, particularly since it seems that market pundits can’t agree on what the meeting minutes are telling us.
We’ll follow price.
Get ready for what may be a wild ride as traders wait for someone else to take the first steps to much-higher or much-lower. The outcome may simply be a narrow range day in the upper end of yesterday’s range – today’s first job is to see if any opportunity shows up in the early going, and, if not, to sit back and wait for a classic break out of whatever range sets up intraday. The potential for false moves up which fail is just as high as continued strong price action.
US Market Calendar
- 7:00 am: MBA Purchase Applications
- 8:30 am: Retail Sales – Mar.
- 10:30 am: EIA Weekly Petroleum Status Report
- 5-year note auction
Canadian Market Calendar
- Alberta Budget
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. Treasury Notes Rise as Retail Sales Are Short of Forecasts
Not much happening in forex here – in fact the US dollar has moved up marginally against a basket of world currencies since the retail report at 8:30 am ET.
US Dollar Index – currently trading at 84.63 – until this range is broken in one direction or the other, Gold is likely to continue to plod along dangerously below resistance:
Gold Contract – daily: now will be on bar six of a bear flag rising to resistance.
We’ll just have to keep watching this. If taking any Gold stock or ETF oriented trades that happen to trigger today, be aware that nothing is resolved here and the outcome of Gold vs Dollar may not favour Gold.
Heads up: after markets close on Thursday Federal Reserve Governor Ben Bernanke will speak on a dollar-moving subject – the U.S. current account deficit, at the Federal Reserve Bank of St. Louis.
To borrow a line from a song, oops, we did it again.
Currently I am short ES from 1184.25 and having taken profits on part of the position, I am leaving the balance short with a break even stop. As price has now retraced enough to call the entire move of yesterday into question, I’m willing to risk open profits here in case a complete reversal shows up by the end of day. I am also still holding shorts in Nasdaq 100 futures from 1508 off the failed test of top on Friday.
For longer term swing trades in stocks I am largely sitting on my hands until the bottom or top of the two day range is cleared. Futures are ideal for extracting profits out of short term price movement; for my longer term accounts, until the picture is more clear I am going to remain largely in cash.
This clunk is not a total surprise: yesterday we discussed the potential for a total reversal in TrendVue Trader Talk:
14:17:54 Mike: If wondering why I am fairly suspicious about this immediate reaction I am treating today much the same as I do on any FOMC day – often the initial reaction is not carried through to the day following, often not even to the close.
and then later
15:26:07 Mike: All the main fun is done for today I think… enjoy your profits, book some and take them home. Complete reversals after FOMC releases are not all that uncommon.
Its maddening when the market seemingly has no direction – but lets remember this – the predominant trend is still down, which means if we see long opportunities we have to be necessarily fast on our feet and not hang about. We also expect downside surprises more than upside in such an environment. Long-term focussed investors would be best off raising cash or picking up a hedge until the coast is clear. At the very minimum, develop a personal action plan for your major holdings in the event that the recent 2005 lows break down again.
When the dominant trend changes, we can alter our game plan. The first sign of this will be if price can regain the two day high on the major indexes.
Today's transcript.
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Wednesday April 13th closing data
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Statistics for Wednesday April 13, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 276 |
|---|---|
| Symbols in Down Swings | 477 |
| Up/Down Swing Ratio | 0.57 : 1 |
| Advancers | 13% |
| Decliners | 85% |
| Unchanged | 2% |
| Up Bars | 32% |
| Down Bars | 34% |
| Inside Bars | 22% |
| Outside Bars | 7% |
| Close > 20EMA | 13% |
| Close > 50SMA | 30% |
| Close > 200SMA | 54% |
| 20EMA > 50SMA > 200SMA (trend up) | 31% |
| 20EMA < 50SMA < 200SMA (trend down) | 29% |
Last week on Tuesday April 5th I raised Gold and the US Dollar as potential markets of interest to us once again. Lets revisit this and expand on the potential here.
US Dollar Index, Daily
While little has changed since and we’ve been patiently biding our time with no new trades in this area, the Greenback is winding up ever more tightly within its triangle, and today put in a NR7 bar on the daily chart.
A NR7 bar is the narrowest range day in at least the last seven days. These NR days frequently precede moves of some significance, so its time to be at a higher level of alert.
I can’t talk about this sector without raising my personal skepticism over the potential for long-side trades to work here – I’m encouraged that the better quality names have been holding most of their post-Feb gains; but as noted here using AEM as an example, the risk is high:
AEM
ABX – very similar chart with perhaps a slightly more “bullish” appearance (subjective, with slightly less “black” on the chart (dark bars) through the consolidation period). Also we must note here that ABX has put in a narrow range bar which also happens to be an inside bar – these both mark points of indecision.
Plan for now: stalk the two day high, do not hold if price does not push rather immediately higher. I plan on following up on this through to Friday even if Thursday marks a down bar, unless its a clear an obvious big clunk down. Oftentimes a quick dip below a long term consolidation provides great potential for upside surprise the following day.
$HUI Gold Bugs Index – just about perfectly aligned for a test of bottom (which may pass or fail) within the next day or two.
Regardless of outcome, we can always make money on the short side – so our job is simple here – wait for a catalyst; and/or opportunistically take trade opportunities before a catalyst if we are able to with reasonable risk. Price extension tells us that there ist he potential for at least a 10% move once price gets going, so we know long or short its a market worth watching.
The next likely dollar-moving events are:
- Thursday, after markets close at 5:00 pm ET – Federal Reserve Governor Ben Bernanke (a strong contender to replace current Fed chairman Alan Greenspan) will speak about the U.S. current account deficit, at the Federal Reserve Bank of St. Louis.
- Friday, Industrial Production, 9:15 am – IP is yet another measure of potential inflationary pressure – a surprise to the upside in capacity utilization would again increase fear that the Fed is behind the curve in raising rates (and possibly support the Crude market as well); a surprise to the downside would tend to support the recent awareness within the market that economic growth may be slowing faster than expected, reducing the need for increasing the pace of interest rate hikes.
Regardless of the interpretations foisted upon these events, there ought to be a decent a long Gold, short Dollar trade (or the exact inverse) available to us within the next two days. If not, then next week’s Producer Price Index (Tuesday), Consumer Price Index and Beige Book (Wednesday) releases are sure to kick the Greenback into motion again.
Featured setups from Wednesday April 13, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
- Caution proved worth while, lets do that again!
- Remember, any test of bottom or top can be traded in both directions, and with this market, we’ve been doing both frequently using leveraged futures to good effect.
- Swing trade potential in DIA, SPY, IWM etc broad market ETFs for shorts should not be discounted – basically we’ll need to look for a break of Wednesday’s low and attempt to find a bounce under which to locate a short. If this move down breaks out of the multi-week lows and starts to trend, there is the potential for 200 – 400 Dow points or more. The prospect of this should not colour our thinking or cause us to take foolish risks – potential targets are just that – potential – and help us understand if its worth taking any risk with our capital.
- Keep an eye on Gold and the Dollar over the next few days.
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
PG – if no trigger Thursday follow up at least 1 – 2 more days.
AYE – electricity – revisiting this theme from several days ago – stocks like TA:C, AES and others in the sector have generally done well or at least fared far better than the market at large. If no trigger we should follow this sector for the next few days or look for alternative patterns in the next week or two.
TA:C – electricity – following setup 4 days ago price has pulled back within the range – we only want to hold this one if price can remain above the range highs.
Test of Top – Continuation
FE – another power producer
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 Top – Reversal
Note: FE could be traded short here too. There are plenty of weak stocks, my approach here is to leave the potentially strong ones alone.
Retracement or Pause in Down Swing / Down Trend
BAX – health care specialty products – a more complex setup but with high potential to be a multi day or multi-week short if the initial going turns out a winner (or loser depending on one’s perspective). 33 is the primary target – below there an estimated additional 3$ of downside exists at least if BAX fails to hold the 2005 lows. Caution – a break out from a rising wedge can turn into a running triangle – a bullish continuation pattern. Hold only if price closes well in favour of the short.
Test of Bottom – Continuation
QQQQ – price extension potential and first and following targets.
DIA
DE – a lot of hammers are going to be broken on Thursday if markets do fail to hold the multi-week lows. DE can be used as a template for any similar chart. Comments re trading both sides of a test of bottom must be kept in mind – as bad as the market looks, there is still some potential left for a surprise bottom to show up. Time is however running out fast.
PCAR – same comments as per DE.
STT – same comments as per DE
Special Situations
JDSU
With all the carnage in semi space and tech lately, we know that one of these days a surprise pop up in the ultra-beaten up names will happen along. Every once in a while a low priced name attracts my attention. While optical seems to be despised by all – but note volume has been picking up in JDSU / JDU:C with little price movement to show for it – Inside bar here, 2 day high will be my trigger for action and clearly will only want to hold this if a surprisingly strong day pops up out of nowhere.
COVD – similar comments as to JDSU – note the selling exhaustion arc down – sine this is the first retracement following its surprising reversal, we’ll stalk a single day here. These counter-trend pops up out of nowhere are quite common in stocks in a long term bear trend – a healthy dose of skepticism is required when trading these. Once in a while, we catch one near the very bottom.