Thursday, April 14, 2005
Issue Contents:
| 09:26 | The Day Ahead Economic releases and news |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 17:57 | Market Direction Update Next set of targets reached... |
| 18:10 | Windows Users - Update Time |
| 18:22 | Swing Scanner Results Thursday April 14th closing data |
| 18:23 | Market Statistics For Thursday April 14, 2005 |
| 18:43 | From the Fed Speeches from our economic gatekeepers |
| 19:37 | Swing Trade Setups Featured charts for Friday April 15th. |
| 21:17 | China's Next Cultural Revolution |
Good morning, its Thursday April 14th, the 104^th day of 2005.
No surprises in the news today – jobless claims fell slightly but last week’s number was revised higher:
” Claims fell to 330,000 from a revised 340,000 the prior week that was higher than first reported, the Labor Department said today in Washington. The four-week moving average, a less volatile measure, rose to 338,000 from a revised 337,750.”1
Meanwhile, Business Inventories came in as expected, up 0.5%2.
Before the bell Crude is up marginally off yesterday’s lows, sitting at 50.59 for the current front month contract and 52.41 for the June contract.
The US Dollar has moved up 0.83% (Gold is off near 1%) on what may be simply technical trading – as its nearing key resistance here, we’ll soon learn if the Greenback is able to break out of the range its been in for some time now. Fed Govenor Bernanke’s speech this evening may factor in this. Also of note:
“There are strong rumours in the market that part of the euro’s misfortunes now are linked to famed U.S. investor Warren Buffett’s trades wherein he is said to be closing long euro positions and netting hundreds of millions of dollars in profit. A report issued by the International Monetary Fund last night is also contributing to the dollar’s strength as the IMF is forecasting the U.S. will outperform the eurozone’s and Japan’s economies this year. U.S. interest rates are higher than those in the eurozone and Japan thus the dollar continues to be supported by positive interest rate differentials and cyclical growth differentials.” More >
US Market Calendar
- 8:30 am: Initial Claims – Apr. 9th week1
- 8:30 am: Business Inventories – Feb.2
- 5:00 pm ET: Federal Reserve Governor Ben Bernanke to speak about the U.S. current account deficit, at the Federal Reserve Bank of St. Louis. Audience Q&A
Canadian Market Calendar
- 8:30 am: Existing Home Sales – Mar.
- BoC Monetary Policy Report
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. Jobless Claims Fell 10,000 Last Week to 330,000
2 Business Inventories Up 0.5 Pct in Feb
Today's transcript.
Click on the title above to expand this document.
Every near term target that we’ve outlined over the past two days has now been hit and we’ve now the task of contending with the big picture – is the “bull” market in serious trouble here?
Nasdaq-oriented traders already say yes – with that market down over 10 percent year to date. NYSE oriented traders may be a little less sanguine about their position if the NYA index heads much lower here – 2005 lows for the NYSE are the next big target:
NYA and market internals, daily
The 2005 lows also happen to be at the 50% retracement of the fall 2004 rally. We’ll hear much more bearish talk from the pundits if the 50% retracement fails to hold.
A note about the a/d volume weighted oscillator – this is an indicator of my own construction. The TrendVue Market Oscillator (TMO) is quite useful on an intraday basis but also helps identify significant extremes as the market swings up and down. As noted on the chart, in a rising market the TMO warns of a swing low near the -100 level; however in a falling market the final bottom – the lowest swing low in a series – tends to register -150 or more.
With new lows expanding in both senior US markets and volume increasing we naturally have to assume that prices are going to head lower still. When the time comes to bottom the signs will be one of the following:
- A dramatic sell off followed by a surprising reversal, clear of all recent ranges on the daily chart, or,
- A retest of the low of a trading range, frequently with a marginal new low followed by a well supported rally.
Our job is to keep an eye out for one of these events and to aggressively get long if either show up. “The” bottoming pattern may show up a day, a week, or several months from now. There may be more than one apparent bottom which later fails. We’ve no choice but to trade any apparent bottom which shows up – frequently these will offer quick 5 – 10% gains in the process – and take profits if or when they fail. Eventually, one bottom pattern will not fail and will continue to rise to the amazement of those who were waiting for some special proof.
Many would prefer to believe there is some special order in the market that can be divined and exploited with a less crude method. I’m sorry to disappoint – but there is not.
Market analysis can not and should not rely on prediction or forcasting. Wiggles on the chart today do not offer magical insight as to what will happen in the market days or weeks from now, let alone years into the future that some market gurus would have us believe they are able to see.
For now, we must remember this: the Nasdaq market has a well defined set of lower swing highs and lower swing lows – the very definition of a down trend. The NYSE market has just reached that same point on the daily chart, and if it can not hold today’s lows as new support, it will quickly join the Nasdaq and accelerate its decline.
Until such time that a pattern of higher swing highs and higher swing lows is visible on the daily charts we have no choice but to be defensive with all long side trades.
Its time to apply recent updates to Windows operating system - if you've got an icon similar to this in your system tray, click on it and allow Windows to apply a number of security patches fixing flaws in Windows that could allow remote attackers to gain control of your machine. If no icon is present in your system tray and you've not recently applied patches, you'll find Windows Update in your Start Menu.
This latest round of updates includes patches for both Windows itself as well as Internet Explorer. Even if you’ve adopted the highly recommended Firefox – a free browser with more features and a better security record than Internet Explorer – you still must keep your copy of Microsoft Internet Explorer fully up to date with the latest patches as some malicious web sites (or email borne viruses or trojans) will try to exploit flaws in unpatched Internet Explorer whether you use it daily or not.
A final reminder: do not trust any “security update” received by email – Microsoft does not publish updates to Windows via email and there are a number of old (and one recent) fake update scams or trojans which in effect compromise your computer if applied.
Thursday April 14th closing data
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Statistics for Thursday April 14, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 168 |
|---|---|
| Symbols in Down Swings | 585 |
| Up/Down Swing Ratio | 0.28 : 1 |
| Advancers | 15% |
| Decliners | 84% |
| Unchanged | 1% |
| Up Bars | 8% |
| Down Bars | 76% |
| Inside Bars | 8% |
| Outside Bars | 5% |
| Close > 20EMA | 15% |
| Close > 50SMA | 24% |
| Close > 200SMA | 49% |
| 20EMA > 50SMA > 200SMA (trend up) | 24% |
| 20EMA < 50SMA < 200SMA (trend down) | 30% |
Editors note – Market Impact: So far, none. Watching anything Bernanke does and says may be useful to us in the future, as he is touted as one potential Greenspan successor.
Economic Outlook
Remarks by Governor Donald L. Kohn
At the 2005 Conference of Twelfth District Directors, Federal Reserve Bank of San Francisco, San Francisco, California
April 14, 2005
On Inflation
More recently, we have seen some hints that inflation pressures could be intensifying. Greater price increases have been most evident for goods at earlier stages of production with an uptick in prices for commodities and other materials, for energy, and for non-energy imports. A number of our business contacts across the nation report greater success in passing these cost increases through to customers, including other business customers.On Monetary Policy
The FOMC has said that it believes it can remove policy accommodation gradually. That strategy should be successful if, as I have outlined, growth ahead is moderate and inflation pressures are contained. Such a strategy has advantages. Importantly, the gradual approach should enable us to better gauge the ongoing effects of our actions in an uncertain world—give us more opportunities to assess the effects of past increases in rates when we know that those effects can vary and will occur with a lag—and hence to calibrate our actions better to the needs of the economy. Moreover, to date, announcing that we expect to remove accommodation at a measured pace has not materially impeded market participants from responding meaningfully to incoming data, primarily by extending the anticipated series of gradual rate increases when these data suggested the potential for greater inflation pressures.But I would like to underline an important message from the minutes of our most recent meeting that were released Tuesday. The path of interest rates is not an end in itself—it is a means to an end, which is fulfilling our mandate for maximum employment and stable prices. A measured pace of rate increases is our best guess, for now, of what will accomplish these objectives. But that guess is conditional and contingent on our expectations that the economy will evolve roughly along the lines I have described.
Communicating our expectations for policy has been unusual for us. In my view, when it is possible, such communication should help to align expectations better with reality and thereby improve pricing in asset markets and the effectiveness of policy. Some observers have objected because they think our words have removed too much uncertainty from markets, encouraging people to take financial positions that they will regret eventually and, by holding down long-term interest rates, work at cross purposes with firming policy. I believe the performance of the economy, rather than our words, has shaped expectations beyond the very near term.
The Global Saving Glut and the U.S. Current Account Deficit
Remarks by Governor Ben S. Bernanke
At the Homer Jones Lecture, St. Louis, Missouri
Updates speech given on March 10, 2005, at the Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia
April 14, 2005
Economic and Policy Implications
I have presented today a somewhat unconventional explanation of the high and rising U.S. current account deficit. That explanation holds that one of the factors driving recent developments in the U.S. current account has been the very substantial shift in the current accounts of developing and emerging-market nations, a shift that has transformed these countries from net borrowers on international capital markets to large net lenders. This shift by developing nations, together with the high saving propensities of Germany, Japan, and some other major industrial nations, has resulted in a global saving glut. This increased supply of saving boosted U.S. equity values during the period of the stock market boom and helped to increase U.S. home values during the more recent period, as a consequence lowering U.S. national saving and contributing to the nation’s rising current account deficit.From a global perspective, are these developments economically beneficial or harmful? Certainly they have had some benefits. Most obviously, the developing and emerging-market countries that brought their current accounts into surplus did so to reduce their foreign debts, stabilize their currencies, and reduce the risk of financial crisis. Most countries have been largely successful in meeting each of these objectives. Thus, the shift of these economies from borrower to lender status has provided at least a short-term palliative for some of the problems they faced in the 1990s.
In the longer term, however, the current pattern of international capital flows—should it persist—could prove counterproductive. Most important, for the developing world to be lending large sums on net to the mature industrial economies is quite undesirable as a long-run proposition.
Featured setups from Thursday April 14, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups
Notes for the Day
- At this writing markets are set up for a gap down open, but we’ll see what happens between now and tomorrow. I’ve already taken some profit from today’s YM short and have tightened down stops on today’s NQ short, while still holding short 1/2 positions from Friday. Take profits frequently and don’t be greedy!
- There’s rather limited selection of stocks that have not already launched into a move down – once economic reports are out in the am I shall take another look around the markets for additional targets.
- Citi Group and GE report, either but particularly GE may move markets
- Its Options Expiration day tomorrow.
- Follow up on un-triggered longs from the last two days that have not pulled back too much. AYE, AES, FE and perhaps TA:C may qualify here. All three are interest rate sensitive.
- Keep ratcheting down your profit stops on open shorts
So many gaps down and outside bars today – truly we need to be ready for anything as quite a few stocks are looking like they are in their capitulation phase of selling.
Its difficult to know up front whether they are in climax selling or just starting an entirely new leg down here – I won’t be truly comfortable with the prospect of another big leg down unless the NYSE index, NYA, fully gives up the support here at today’s lows.
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
LGF – entertainment – not strictly a bottom however there is a notion of support from the prior gap down in March and now two hammers this week and recent news.
LSI – semi – a public service announcement to keep looking for opportunities on the off chance that the semi space isn’t going to zero.
Retracement or Pause in Up Swing / Up Trend
BAC, break glass in case of surprise. Citi reports tomorrow – may help or hurt entire sector.
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
HCA – health care – this sector keeps getting hyped as the place to be, and while its certainly true that its been doing very well while most other stocks and sectors have not – all good things come to an end eventually.
Extreme ADX, range is contracing on daily bars – a pause or turn around may be near by. Look for an intraday pattern to get short on, hold only if it drops like a rock.
Retracement or Pause in Down Swing / Down Trend
VZ is weaker than a number of its peers but could go either way here. Rising wedge suggests a target at base.
China's Next Cultural Revolution
The People’s Republic is on the fast track to become the car capital of the world. And the first alt-fuel superpower.
By Lisa Margonelli – Wired Magazine
An interesting article: Full text >
Excerpt:
In the lobby of one of Shanghai’s vast Epcot Center-like hotels, Cai Xiaoqing taps his foot restlessly. He wants to jump-start the hydrogen economy immediately. With an astronaut’s brush cut of salt-and-pepper hair, Cai looks the part of the former space program technocrat he is. As director of the Equipment Industry Department for Shanghai’s Municipal Economic Commission, his job is to make Shanghai the Detroit of China.
Like everyone else here, Cai speaks in billions and of far-off years, but he’s more impatient than most. He can’t wait for a homegrown fuel cell. Cai wants Shanghai to quickly move to hydrogen. But how do you start a hydrogen economy without a hydrogen car?
Cai looks abroad and sees foreign auto manufacturers sitting on piles of expensive fuel cell technology with nowhere to test it. In California, they’ve been reduced to clownish stunts like putting a fuel cell in Arnold’s Hummer. Cai can do better than that.
Bouncing slightly, Cai pitches Shanghai as a test track: 10 fuel cell cars in circulation by the end of this year, 1,000 by 2010, and 10,000 by 2015. But making hydrogen cars a reality by 2020 will require government investment in technology and subsidies to consumers. Cai calls it “a long step.” Others say it’s impossible. But consider the payoff: clean cars ready for export just as the rest of the world starts to choke on pollution and gasoline supply problems.
To provide the fuel cells, Cai has his eye on General Motors, which has poured more than a billion dollars into a hydrogen-powered fleet but has nowhere to drive it. “If China develops the infrastructure, GM would put those cars to use,” Cai says, “I think they see China’s big market, too.”
Across the hall, the 863 Program unveils its newest prototype, the Spring Light 3, a fuel cell-electric hybrid with steer-by-wire technology and regenerative braking. Target price: about $5,000 – the car for the new masses. While Western automakers often boast that their enviro-wagons make “no compromises,” the 863 Program makes compromise its guiding principle. Like the funky Aspire, the Spring Light takes you where you want to go, without promising more. American cars are all ego, but the Aspire and Spring Light are friendly, even neighborly. They’re all about getting along, not getting away.