Tuesday, May 3, 2005
Issue Contents:
| 09:09 | Swing Trade Setups Featured charts for Tuesday May 3 |
| 11:44 | The Day Ahead Economic releases and news |
| 15:21 | FOMC Raises 25 Basis Points |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 16:47 | Swing Scanner Results Tuesday May 3rd closing data |
| 16:48 | Market Statistics For Tuesday May 3, 2005 |
| 17:25 | Currencies: FOMC Reaction |
Featured setups from Monday May 2, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
- First the basics, ETF’s to add exposure. I won’t be making changes to my current ETF holdings (or adding more) until after the FOMC release
- Expect volatility; if the market reacts positively, once the initial surge is over in the minute or two following, we may quickly have to decide which side to take and act without hesitation. Markets are now so wound up that we may see a substantial rally, but any overt hawkishness or surprises in the language could drive exactly the opposite reaction. Be prepared.
- Further swing trade ideas will be published during the morning – most FOMC days I trade very little in the chop that leads into the meeting and use the time to prepare for what follows 2:10pm ET.
- A minor rally today will lead to the potential for market failure tomorrow so if the gains are slight by day’s end I will be moving profit stops up fairly tight
- I may have to enter positions twice today – price usually drifts in the hour or two before FOMC – if new positions have not gained enough pre-meeting, I may be stopped out at break even and will re-enter after the initial excitement post meeting dies down.
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
ATYT (ATY:TSX) – semi/chips space
IWM – Russell 2000 ETF – these have not participated as much as large caps and I believe this to be a cautionary sign here. Aggressive traders may also wish to stalk a short at just below Monday’s low.
QQQQ – same comments, long and short. Post FOMC I would join this one with a “Caboose” entry, target 35.50 or beyond, if the market reacts very positively
CFP:C (TSX) forest products, reported a big quarter, harami just below swing low test, may be worth a single attempt to get long here.
Test of Top – Continuation
DIA – retesting range high. Targets on up and downside for post FOMC (including tomorrow) price action
INTC – inverse head and shoulders; may have to attempt to enter twice – likely to trigger near the open and then drift; post FOMC if stopped out I will try again.
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
NEM – if Gold sells of pre/post Fed due to a stronger USD, NEM will be one short candidate; pick any of the weakest Gold charts for a shorting opportunity. I am still stalking a long in ABX and other stronger golds.
NOVL – wedge breakdown and a narrow range 7 bar, appears to be rolling over but please exercise caution.
Special Situations
X – long or short – steel
Good morning, its Tuesday May 3rd, the 123rd day of 2005.
Today its all about the Federal Open Market Committee interest rate policy decision, due to be announced at 2:15pm ET.
While we wait, some mildly positive news, depending on one’s perspective, came in on the Factory Orders front with a small gain trumping an expected decline by analysts. Weaker than expected economic news of late may reign in the Fed from stepping up rates at a faster pace, or perhaps more importantly, from adopting a more hawkish tone in the accompanying press release.
Conflicting news on the labour front ahead of Friday’s all-important jobs report:
Factory-Related
U.S. employers added 110,000 workers in March, the fewest since July, the Labor Department reported April 1. At the same time, the economy lost 8,000 manufacturing jobs. An additional 1,000 manufacturing jobs probably disappeared last month, according to the median forecast in advance of the May 6 report from the Labor Department.
Factory jobs continue to move overseas. David Farr, chief executive of Emerson Electric, plans to double Emerson’s workforce to 24,000 in low-wage countries such as China and India in the next 18 months to cut costs. He also plans to triple sales in China within four years. The number of Emerson hourly employees working in higher-wage countries such as the U.S. and Germany shrank to 47 percent as of August, from 70 percent in 2000.2
Challenger Layoff Report
“The lowest job-cut figure since 2000 is certainly great news for an economy that has been struggling for over two years to produce definitive signs of a strong turnaround,” said a statement from John Challenger, CEO of the firm. “The news could get even better in the months to come, since our data show that job-cut activity slows considerably during the summer months.”
“Employers seem to be shifting their focus from job elimination to worker retention, which could lead to lower job-cut figures in the months ahead,” he said. “However, this may correspond with lower job growth, as employers take a wait-and-see approach to staffing. They may ask current employees to put in longer hours and/or utilize more productivity enhancing technology before adding to their payrolls.”
Longer hours? What a concept!
US Market Calendar
- 7:45 am ICSC-UBS Store Sales
- 8:55 am: Redbook – Apr. 30th week
- 10:00 am: Challenger Layoff Report – Apr.1
- 10:00 am: Factory Orders – Mar.2
- 2:15 pm: FOMC Meeting News Release
Canadian Market Calendar
- No releases scheduled
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 Monthly layoffs lowest since ‘00
2 U.S. Factory Orders Rose 0.1% in March; Ex-Trans. Rose 1.3%
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 3 percent.
The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices. Labor market conditions, however, apparently continue to improve gradually. Pressures on inflation have picked up in recent months and pricing power is more evident.
The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
Update: More than an hour after the original release, the FOMC stated that it had inadvertently left out a sentence off the end of the second paragraph:
“Longer-term inflation expectations remain well contained.”
Market Impact? As usual, the initial reaction is the domain of computers and lightning fast traders – the net result may not be known until tomorrow. For now we know only this:
- Stops have been run above the range established over the past few weeks on the largest of equity indexes, the S&P 500 and Dow 30. This happens very frequently on FOMC days, only to head in a different direction in the hours or days to come. The reaction from investors and traders is a bit like the Taser stun gun when price goes way up and way down so quickly, and it takes a while for everyone to come to their senses once again.
- Price has to back up and head higher relatively quickly or sellers still step in once again and press their case.
- So far, support below today’s trading range is holding. If that changes, we’ll adopt a much more negative view on where price is headed, but not until.
S&P 500 – rising wedge; if this fully resolves the target is the base of the wedge. For now its time to protect longs with appropriate stops and not read too much into the initial reactions – often what follows the next day does not at all reflect the “day of” reaction.
Dow 30 Futures – provided 10185 holds as support in the next day or two, we may yet see another attempt to break out; there is a good 200 – 300 points of potential stored up in the market – long or short, once support is confirmed, or turns into new resistance, there will be a good multi-day trade ahead.
So far, price is holding above support – 1150 – 1155 on the S&P, 10165 – 10185 on the Dow 30.
The FOMC may have given markets a gift here – by acknowledging that growth appears to be slowing some what, the market may not fear future positive economic reports quite to the same degree that it might have. We should remember that the prevailing mood of the market changed substantially following the last FOMC meeting, turning fearful of positive economic news due to concern the FOMC may adopt a more aggressive interest rate hike policy or language. This statement won't completely change the emotion, but may have given the market a bit of green light.
Lets see what sober second thought later today or tomorrow brings to the market…
Today's transcript.
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Tuesday May 3rd closing data
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Statistics for Tuesday May 3, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 479 |
|---|---|
| Symbols in Down Swings | 272 |
| Up/Down Swing Ratio | 1.76 : 1 |
| Advancers | 47% |
| Decliners | 50% |
| Unchanged | 2% |
| Up Bars | 43% |
| Down Bars | 27% |
| Inside Bars | 17% |
| Outside Bars | 7% |
| Close > 20EMA | 48% |
| Close > 50SMA | 29% |
| Close > 200SMA | 47% |
| 20EMA > 50SMA > 200SMA (trend up) | 19% |
| 20EMA < 50SMA < 200SMA (trend down) | 33% |
Tepid, that’s the first word that comes to mind when reviewing currency charts post FOMC verdict, which suggests we’ll have to wait for further economic data this week before any substained reaction is in the charts. There appears to be plenty of concern on the sidelines that business may be slowing more than expected; we’ll look next to the labour reports – in particular since the Fed sought to single labour out in its release today – on Friday for more hints.
Of particular interest, USDJPY is on the verge of breaking support and heading lower – its one of the few major currencies which has been moving opposite the USD during the recent greenback bounce.
USDJPY
USDCAD – also very interesting, in that its failed (so far) a test of top. Now that the interest rate differential between the US and Canadian markets is at its widest point in four years, the greenback ought to be acting a little stronger than it is here. The Bank of Canada has not suggested its cycle of rate tightening is ready for a pause – perhaps markets are taking this into account.
DXY – US Dollar Index – failed at resistance, so far.
Keep an eye on Gold and Gold stocks tomorrow…