Wednesday, May 11, 2005
Issue Contents:
| 06:55 | The Day Ahead Economic releases and news |
| 09:01 | Swing Trade Setups Featured charts for Wednesday May 11 |
| 09:21 | Focus: Currencies |
| 09:23 | Focus: Gold |
| 14:31 | Focus: Crude |
| 15:32 | Market Direction |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 18:25 | Swing Scanner Results Wednesday May 11 closing data |
| 18:26 | Market Statistics For Wednesday May 11, 2005 |
| 22:56 | Swing Trade Setups Featured charts for Thursday May 12 |
Good morning, its Wednesday May 11th, the 131st day of 2005, and a day of much speculation in world currency markets on reports not confirmed by officials that China will revalue its currency perhaps as early as next week.
Rumour or trial balloon?
- April 30 – China People’s Daily – China not planning to revalue yuan China does not plan to revalue its currency, the yuan, during next week’s Labor Day holiday, a central bank spokesman said Friday, quashing rumors that such a change was imminent. “As far as we know, there’s no adjustment expected in the yuan exchange rate,” Bai Li, spokesman for the People’s Bank of China, told Dow Jones Newswires. A brief wave of speculation over a possible shift in currency policy roiled regional share and currency markets Friday. Such rumors have been circulating in the past week, despite official denials that major changes were pending. Beijing says it will eventually let the yuan trade freely on world markets, but that doing so immediately would damage the country’s frail banks and financial industries.
- May 10 – Economic Times – US turns up the heat on China to revalue remninbi US officials also have said they understood China needed time to prepare for such a switch. But the administration toughened its rhetoric last month. Treasury secretary John Snow let it be known the US feels that China has made all the preparations necessary and could switch to a flexible exchange rate. Mr Greenspan told a congressional committee that China’s current system represented a threat, including higher inflation, to the Chinese economy.
- May 11 – Bloomberg – Yen Gains; People’s Daily Says China to Revalue Yuan Next Week The yen rose against the dollar and the euro after the People’s Daily, a Communist Party-owned newspaper, said that China will revalue its currency next week after keeping it pegged for the past decade. China will make the change after meeting U.S. officials, the paper said in its English-language online edition, without saying where it got the information.
Or mistake?
UBS research noted that “The Bloomberg report is based on what appears to be a mistranslation on the People’s Daily’s English-language web site, as the 1m and 1y bands given correspond closely to the NDF rates.”2
One long-time investor in Asian markets notes:
``The best time I believe in their view would be when the reaction wasn’t so great,’’ said Mark Mobius, who manages $13 billion of emerging market stocks at Templeton Asset Management Ltd. ``They don’t want to hand a gift to speculators.’’ Mobius said China may shift the peg ``at any time.’’ An appreciation of the yuan would help other Asian currencies, which are ``undervalued,’’ make gains against the dollar, he said.
Speculation on the revaluation of the yuan has been continuing for months, and is in no small way creating choppy trade for the US dollar.
``The significance of everything has waned relative to the situation in China,’’ said Steve Barrow, a currency strategist at Bear Stearns Cos. in London. ``The bias is most definitely for a lower dollar.’’ He spoke in an interview on May 6.
Japan’s currency may rally to 99 versus the dollar at year- end, according to the median forecast of 49 analysts, traders and investors surveyed by Bloomberg News between March 29 and April 6. The estimates were based partly on expectations the yuan would appreciate.
``If China moves, they can all basically move,’’ said Bankim Chadha, head of macro currency research in New York at Deutsche Bank AG, the biggest foreign-exchange trader. ``It becomes a little harder for Japan’’ to stem a rally in the yen, and the central bank may let it appreciate to 95 per dollar, he said.1
In addition to speculation on China’s intentions, today features a dollar-moving event with the release of trade balance figures for March, which by all accounts most observers expect to show yet another increase to new, historic, highs in the US trade deficit.
US Market Calendar
- 7:00 am: MBA Purchase Applications
- 8:30 am: International Goods & Services Trade Balance – March
- 10:30 am: Weekly Petroleum Data
- 12:00 pm: Federal Reserve Governor Susan Schmidt Bies speaks at a meeting of the New York Association for Business Economics
- 2:00 pm: Treasury Budget
- 5-year note auction
Canadian Market Calendar
- 8:30 am: Merchandise Trade Balance – March
- Ontario 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 Yen Gains; People’s Daily Says China to Revalue Yuan Next Week
Featured setups from Tuesday May 10, 2005 closing data symbol scan
Jump to: Long Setups | Special Situations
Notes for the Day
Trade numbers are supporting the US Dollar today, after it had been down on “news” from China re the yuan; stock futures up – its probably a now or never day today with yesterday’s lows being the line in the sand that must hold to avoid a fairly significant (or total) retracement of the recent rally.
ETF Trade Example
DIA – if possible find a suitable intraday entry point, as our goal should be to position early to make it possible to hold overnight provided sufficient profit has been built up by the close.
One the short side my plan again is to use ETF’s if the key support levels identified yesterday (or yesterday’s lows) break and hold broken.
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
Tech
PXLW – semis, display chips – while its hard to get excited about this chart rising to overhead resistance, for a single down bar in an up-swing I will stalk a long here,
prompted in part by the 2B test of bottom on the weekly.
SMH – semiconductor ETF, sparked largely by TXN after its positive report a couple weeks ago, SMH is pausing near old resistance, potentially new support here. Can be stalked in both directions, extra caution on the short side as price action has been improving in the group. TXN itself may also be stalked in a similar manner today.
QCOM
Media
LGF – media/entertainment – continuing yesterday’s theme, Lions Gate here has been pausing at a swing high retest.
TWX – follow up from yesterday
CMCSA – follow up from yesterday
Consumer Non Cyclicals
GIS – consumer non cyclical – pause at range test – one try only here. Reasonably defensive sector
CAG – similar to GIS, one attempt only
KFT – folks have to eat – one attempt only. CAG and KFT perhaps have nicer looking charts, GIS consolidation may provide decent lift just the same.
Finance
BNS:C (BNS:NYSE) – thinly traded on NYSE, Bank of Nova Scotia is lagging many Canadian banks but I am going to stalk this consolidation for one attempt here regardless, in part on valuation and despite warnings that banks are not the place to be during a fed tightening – these issues are not quite so pronounced in Canada where all the significant players are national banks rather than regional, smaller, players.
WFC – Buffet once bought this
BAC – testing range highs, stalking one day only
Defense
HON – trendline breakout and first pause
IR – same sector and setup per HON
Electric Utils
AEP
Test of Top – Continuation
TUP – yes, tupperware… pause following range breakout
Special Situations
Off the low-priced shelf:
COVD – buy on break of yesterday’s high being careful to avoid minor wiggles which later reverse – demand price move or re-stalk later or stand aside. Note line off top of tall down bar – this old resistance may hold as new support. Its as reasonable an opportunity to attempt a long in COVD as has appeared in some time.
Lets have a look at the Forex picture early this morning on news of a potential change in the Yuan/Dollar relationship. As is to be expected, Asian currencies have been trading generally stronger (weaker USD) on the news.
US Dollar Index, yesterday – signaled some weakness at resistance
USDJPY
USDCAD – with all the political turmoil in Canada these days, it would be shocking to see the Canuk buck rise, but surprise, it has been until trade figures this morning put an end to any strength the CAD was enjoying.
USDCHF – Swiss Franc pair, trading below resistance
EURUSD – weekly chart – we can see that these levels have been tested a number of times this year – along side generally weak economic performance, one would expect the uncertainty over the adoption of the EU constitution may spark a poke through the trendline from 2002 to recent times (not drawn) – caution for longs, potential opportunity following any break.
And then things change…
USD Index – this morning following this morning’s trade numbers – a big outside bar jamming right back up and through resistance. If it holds then we’ll see an attempt to break out of the triangle to the upside and gold of course will continue its trip down, having already broken out of its triangle to the downside.
The real story in Gold is the unexpected narrowing of the trade deficit reported this morning, causing a swift reaction in forex markets:
US Dollar Index
Yesterday, prior to the deficit numbers Gold had sold off even as the USD was acting weaker:
Gold – broke down through the triangle – the Gold contract really needs a Yuan revaluation or some similar event to weaken the dollar and push price back into the triangle, but for now, thanks in part to this morning’s lower than expected trade deficit, it looks like a deeper retracement is in the cards until such time.
TSX Gold Index
Strategy – for me its simple, I will not be long the group until such time that the USD again shows weakness – we may see a test of the 85 level fail today, or it may take days or weeks or months before some other event causes USD weakness. When you have triangles as big as these are in USD and Gold, we can’t argue with price too much and live to tell about it.
Crude inventories build, yet crude held surprisingly firm for much of the day before falling sharply after the security alert in Washington was resolved. Here’s the latest report, indicating continued increase in demand, and what appears to be a trend of increased reliance upon foreign (Canada, Mexico) suppliers of distilled products to make up for near maxed out refinery capacity.
Weekly Petroleum Status Report, Week ending May 6
U.S. crude oil refinery inputs averaged nearly 15.4 million barrels per day during the week ending May 6, down 26,000 barrels per day from the previous week’s average. Refineries operated at 91.8 percent of their operable capacity last week. Despite the slight decline in refinery inputs, gasoline production increased last week, averaging nearly 8.9 million barrels per day. Distillate fuel production rose slightly compared to the previous week, averaging nearly 4.1 million barrels per day.
U.S. crude oil imports averaged 10.0 million barrels per day last week, down 267,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 10.2 million barrels per day, which is 99,000 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) last week averaged 1.1 million barrels per day, and for the fifth consecutive week, extended the longest streak ever in which gasoline imports have averaged at least 1 million barrels per day. Distillate fuel imports averaged 229,000 barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 2.7 million barrels from the previous week. At 329.7 million barrels, U.S. crude oil inventories are above the upper end of the average range for this time of year, and the highest since the end of March 2002. Total motor gasoline inventories inched up by 0.2 million barrels last week, putting them just below the upper end of the average range. Distillate fuel inventories rose by 1.7 million barrels last week, and are in the lower half of the average range for this time of year. Total commercial petroleum inventories rose by 6.9 million barrels last week, and remain in the upper half of the average range.
Total product supplied over the last four-week period has averaged over 20.4 million barrels per day, or 1.1 percent more than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.2 million barrels per day, or 0.9 percent above the same period last year, while distillate fuel demand has averaged over 4.1 million barrels per day, or 1.4 percent above the same period last year. Kerosene-type jet fuel demand is up 5.0 percent over the last four weeks compared to the same four-week period last year.
Will higher prices engender reduction of demand? Every EIA weekly report I can remember in recent months has gasoline demand running at a 1 – 2% increase year over year. Some say the market is awash in oil, but lacking capacity – irrespective of this, demand continues to rise and the peak season (and hurricane season) is just around the corner.
Lets be clear here – we’ve no reason on the charts to believe a trend reversal is imminent, in fact, if anything the recent bounce to resistance provided a perfect opportunity to gain short exposure in the commodity (today), and to lighten up on energy holdings (over the last two days I’ve been issuing that warning and heeded it myself).
Crude – front month contract, daily chart
Sell off in crude and related stocks aside, there is a “surprise” up scenario, one which I am exploiting with an intraday purchase of ECA, and TLM. Here’s the scenario – a break of Wednesday’s high (51.95) sets up a bear flag trigger failure long setup. The safer strategy is to wait for indications tomorrow that crude is willing to at least make an attempt to rise to the 51.50 level again; the aggressive strategy was to buy as price pushed above the big dip immediately after the EIA report came out.
ECA:C (TSX) / ECA:NYSE
At 10:40am I opted for the latter, and believe my overnight risk is manageable. Am I confident this is a bottom in this stock or sector? No, not at all – its merely a good technical trade opportunity, but lets not forget its a counter-trend trade (long) in an established down trend.
Please remember the premise of this trade off the daily (whether entered today or tomorrow) requires that price make a fairly direct move up tomorrow, therefore a break of today’s low in CL or the individual stocks will see me exiting quickly. Keep an eye on today’s highs in your favourite energy stocks for potential long opportunities tomorrow.
Lets update yesterday’s Clash-inspired Market Direction note where we laid out the key support levels which the market needs to hold in order to protect the rally off the April lows.
What started out as a great rally off the April lows is now in danger of failing and reverting to the longer term direction, which is, so far this year, down. Mapped out on the ES chart are the two likely scenarios. If price can fairly directly reclaim the 1170 level then the up scenario – overhead resistance turns into new support and price moves back in to the nearest range above – is fully in play.
S&P Futures – 135 minute chart, 30,000 foot view
Today’s oil and security-scare inspired clunk below support reversed neatly during the afternoon bringing price right back to what was old support, which now is new resistance until proven otherwise by a set of higher swing highs and higher swing lows above these support levels – 1460 NQ, 1170 ES, 10300 YM.
Nasdaq 100, S&P 500, Dow 30 Futures
With 40 minutes to go to the end of today’s session its unlikely price will gain enough steam to justify holding new longs at this point, so unless price really gets going here soon these price levels will serve as tomorrows indication of which side of the trade to be on.
The 135M chart is very useful in gaining a broader perspective within the daily bars, and is often helpful – like the 78M chart for stocks, in seeing patterns that appear as noise in smaller time frames. Here we have a rising wedge to overhead resistance; a break down through the rising trendline of the wedge, and a bounce back up to the breakdown.
The latter part of that last statement is key. I will always short underneath the first bounce back up to the underside of a broken wedge. You don’t need to short the market to take advantage of this – less aggressive traders can monitor the failure point and use that as an indication that its time to take profits or reduce market exposure on the long side. If price does come back down and trigger a short, it will be my cue to radically tighten protective stops on remaining open long positions.
Unless or until such time that support has been regained and confirmed, we have to be prepared for scenario two, failure at overhead resistance. The rising wedge has a typical target of the base of the wedge.
A final thought: This market’s real nemesis is oil and has been for far too long, which is quite curious since oil has been in a down trend since the start of April. The downtrend hasn’t helped the stock market much, so we can only imagine how the market would react if the down trend in crude were to engineer a surprise reversal this week and start to trend higher…
Today's transcript.
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Wednesday May 11 closing data
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Statistics for Wednesday May 11, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 272 |
|---|---|
| Symbols in Down Swings | 475 |
| Up/Down Swing Ratio | 0.57 : 1 |
| Advancers | 60% |
| Decliners | 37% |
| Unchanged | 3% |
| Up Bars | 22% |
| Down Bars | 50% |
| Inside Bars | 10% |
| Outside Bars | 13% |
| Close > 20EMA | 60% |
| Close > 50SMA | 41% |
| Close > 200SMA | 51% |
| 20EMA > 50SMA > 200SMA (trend up) | 24% |
| 20EMA < 50SMA < 200SMA (trend down) | 30% |
Featured setups from Wednesday May 11, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
Several hundred charts later…
- Market Direction notes from yesterday are most pertinent here.
- In a positive market environment, a number of Wednesday’s featured charts will be fair game for Thursday including WFC (banks), TUP (consumer non cyclical), DIA of course, SMH (or AMAT and INTC if market is very strong), CMCSA (cable) and HON (defense).
- Speculative name from yesterday’s list – COVD, made a very tiny narrow range 7 bar – certainly is worth the time and effort to stalk a long there in the right market environment
- Wednesday’s defensive names such as AEP, GIS and KFT which did move up need to be watched carefully for the dreaded one up bar wonder – move to tight stops at the earliest opportunity.
- Again a lack of shorts is more an indication that this retracement remains “buyable” – we need to see a weak up day before a great number of short opportunities will show up. Hopefully a market rally will turn up on our doorsteps and we’ll be happy we aren’t short in a big way; but if oil or other factors do weigh in on the market, rather than wishing for short exposure on the broad market (which is getting hard to get with QQQQ and other ETF shorting restrictions), grabbing long exposure in energy may be a better solution.
Above all, remember that our goal is to position ourselves where price ought not to go without a real attempt at heading in our preferred direction of trade. We can consider ourselves successful even if none of our setups reach the trigger, as the primary objective is to avoid taking positions unless price is at least able to prove to us its able to head in our direction.
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
AA – aluminum, 2B test of bottom. Both AA Alcoa and and AL Alcan have really been sold off lately; given the part industrial, part consumer bent to these stocks its reason enough to wonder about the state of the economy or timing within the current economic expansion cycle. Certainly the big sell off makes me fret a little. But here’s a 2B test of bottom and valuations are lower than the’ve been in some time. I will probably opt for a trade in AL myself.
Retracement or Pause in Up Swing / Up Trend
ENERGY – COAL
FDG / FDG.U:C – energy, coal – talk about a pause in an uptrend, a triangle is the ultimate in pauses. Eventually this market will be one we want to be in as “alternative energy” for the Bush administration means Coal, Natural Gas, future Liquified Natural Gas terminals (if they can get past the NIMBY issues), and Nuclear plans. New “clean” coal ads were all the rage last year and if one took the hint, one was rewarded richly. Is it too late to cash in? Might be, but this break out from a triangle is an opportunity that I must pursue with a trade opposite (long) lurking above…
MEE – energy, coal, this one with a US focus and we can see price has already broken out of the downtrend and this is the first pause since.
ENERGY – OIL AND GAS
UTS:C – Canadian oil major PetroCanada bought a 60% share in UTS’s tar sands project, some speculative value in stalking this one. Higher risk for buy and holders.
APA – pulled back to 50% fib retracement and still holding for now.
ECA – does one better than APA and is tradling well above its 50% retracement
VLO, refiner – continued pressure on gasoline supply gives us reason to stalk but lets keep in mind the potential for a H&S top here…
TECHNOLOGY
QQQQ – Nasdaq 100 ETF, we’ve been patient on reloading longs in QQQQ, its time to get ready if resistance breaks just above…
ATYT / ATY:C (TSX) – shaken out of this one intraday, I wonder why I let myself react as such. Darn thing will probably go up tomorrrow to teach me a lesson.
CLS / CLS.SV:C – may get a delayed positive boost to this sector thanks to CSCO report the other day. SLR, JBL should be considered as well.
NSM – national semi; don’t for get SMH
FINANCIALS
SLF:C – insurance, diversified – a name for Canuks following this page.
GOLD
ELD / EGO; already long in ABX off the intraday low, I will look to add exposure via ELD if currency markets make gold work on Thursday. I’ve low expectations unless yuan speculation comes back to the forefront overnight. Regardless of whether it triggers or gold works at all tomorrow, this one goes in the file folder for future use – when I come across names and charts that appeal to me I file them away to reuse at the next opportune time. Note that PDG – a former favorite turned dog – has probably sold off enough to be interesting if / when a bottoming envrionment shows up in Gold.
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
PFE – drugs – Pfizer may well break out to the upside and turn this rising wedge into a running triangle with a first major target of 30 – 30.50; but for the time being the rise on declining voluem feels a little creepy and I am watching for an opportunity to short it. Note the daily chart – we know where it must hold above here:
PFE – daily
Special Situations
Today’s low priced speculative pick – LU. Nortel might also be stalked for a trade; LU might even be worth holding.