Friday, August 5, 2005
Issue Contents:
| 09:00 | The Day Ahead Economic releases and news |
| 09:32 | Swing Trade Setups Featured charts for Friday August 5th |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 19:40 | Swing Scanner Results Friday August 5 closing data |
| 19:42 | Market Direction - Update |
| 19:47 | Sector Statistics |
| 20:54 | Market Statistics For Friday August 5, 2005 |
Good morning, today is Friday August 5th, the 217th day of 2005.
This morning’s employment report showed solid gains in both the July headline number and included as well upward revisions to the data from the prior two months, further solidifying trader expectations of further Federal Reserve rate hikes in 2005. Its a clear and present concern, not a far off worry, as the next rate setting meeting is Tuesday next week.
Following last week’s reports of lower business inventories, analysts at some of the big brokerages have been jacking up forecasts for the second half of 2005, expecting a tighter labour market, and an increase in GDP growth.
``The outlook is great, and the economy is firing on all cylinders,’’ said Brian Wesbury, chief investment strategist at Claymore Advisors LLC in Lisle, Illinois, before the report. ``Businesses are confident, and I think the job market is stronger than the numbers this year have suggested.’’
An insightful comment, as sales for autos have been surging on the back of these “buy it at employee price” deals the major domestic car manufacturers have been putting out. More large auto’s on the street + firm or higher GDP and employees taking home an average +6% in wages = increased demand on energy.
Pre-market stock index futures sold off on the report, now down approximately 1/4 percent. Crude futures are trading up about 1 percent; natural gas somehwat higher yet. Due to the on-going heat wave electricity demand continues to be high. Demand in Ontario is at record levels and the system operators there have cut voltage twice this week in an attempt to stave off rolling blackouts.
Already a record setting year for tropical storms, news of another tropical depression from the National Hurricane Center is likely to keep a bid under the energy futures. It would appear that August 2005 will usher in a new record as the earliest ever in recorded history where 9 storms of tropical storm strength or greater have been recorded. Tropical Depression Nine is expected to reach tropical storm strength over the weekend and hurricane status early next week.
US Market Calendar
- 8:30 am: Employment Report – July1
- 3:00 pm: Consumer Credit – June
Canadian Market Calendar
- 7:00 am: Employment Report – July
- 10:00 am: Ivey Purchasing Managers’ Index – July
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. July Payrolls Rise 207,000; Jobless Rate Holds at 5%
Featured setups from Thursday August 4, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups
Notes for the Day
- Don’t forget to follow up on untriggered short setups from the prior two days.
- US Dollar surging on rate expectations thanks to the labour report; Gold likely to pull back or stall a bit until this works its way through to a conclusion. Frankly I’d be surprised if most large houses didn’t expect more rate hikes this year, so perhaps whatever trend the USD was in (seemingly down for a while) will resume in time here. Still, may be time to take some profits out of names like ABX which have more than met expectations lately, and it certainly is time to take care with new gold trades (one or two are in today’s list)
- a small gap-down open today may launch (and continue in some cases) a new down leg out of the range some stocks and some of the big indexes have been in for the past couple of weeks but we should also keep in mind that very often gaps down mark a swing turn – that is from down to up. Stocks that have been working well and do not appear to be too extended, are still in general up trends, are good candidates to have ready in case getting long again in the early going is required. I always keep at hand a ready list of recent favorites that have worked well for me; failing that, I buy index ETFs, usually IWM, QQQQ and DIA.
- Energy names are looking toppy here – extended, high ADX, etc. We could stalk trades above inside bars in stocks like MRO or TLM, perhaps APC and APA too – but be very careful here. Patterns in MRO and TLM are very similar – both potential short term (at least) topping patterns. I’ll be taking trades that move above yesterdays high but will be expecting failure and won’t be unhappy about that – but would be unhappy if I didn’t make the effort. Some might even want to try a short in the sector – I personally do not short energy, at least not overnight when the sector is in an up cycle.
Example of gap up, pause, pattern in MRO, TLM
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
ECA – energy – look for entry on break of two day high; must close above line drawn to keep or even hold through the day.
RIG – energy services – two day high
LSI – tech – a potential gap down and reverse – pulling from long list if it heads lower than yesterday’s low.
KLAC – semi space – one day only
BGO – fold, keep comments above in mind
CMVT – tech – one to folow up for next few days if no trigger today
EBAY – follow up 1 – 2 days but no lower than approximately where first support line drawn
PPL – first pause following breakout follow up 1 – 2 more days
XLF – finance ETF – note comment on chart – bull flag on weekly chart – one to watch for the longer term perhaps. Some sector players pretty weak lately, caution.
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
DIA – the Dow has been the weakest acting index for some time now – if this range low breaks the short trade I want to stalk is a retracement to the range low intraday, selling below that. Make the market prove to you that it wants to go lower by stalking a BOUNCE underneath. We only want to hold short of price closes solidly lower. Remeber gaps down often form swing lows, implying a reversal to come. Certainly the Dow needs a reversal here… or it will rerace to near 104.
Today's transcript.
Click on the title above to expand this document.
Friday August 5 closing data
Click on the title above to expand this document.
Was the last two days of market action a buying opportunity or sea change?
We’ll only know after the fact for sure. The problem with tops is that everything generally looks just grand at the top, and its generally not until long after a top is in place that people are able to recognize it as such, and then move on to assigning blame or some other notion to justify in their minds the why behind a market trend change.
Dow 30 – July 21 Heads Up followed by an honest-to-goodness failed 2B test of top on July 29.
Back on July 21st I put out a market direction heads up that laid out the pre-conditions that needed to be met in order to call a trend-change. Some of those pre-conditions started to be met today, following what are so far failed tests of tops in the Nasdaq, S&P 500, Russell 2000 and Dow 30 Industrials indexes.
On July 28th we detected and sold a failed test of top in the Dow 30:
15:14:45 Mike: So the situation is this – so far, a failed test of top in smaller time frames and a rising wedge and a spike of sorts in price and volume at the bigger test dating back over past few days. A failure will not be more evident to other participants unless price breaks 10700 and/or picks up a head of steam which so far it is not.
But, as luck would have it, we had to work a little harder at nabbing YM and sold it again the next day:
10:01:53 Mike: moved to 10722 VERY AGGRESSIVE
And while that trade and others over the next few days netted profits on the short side, the Dow continued to chop around just under the July 29th lows. Such is life… markets frequently chop for 7 – 14 days before making a big move and even though this move is down so far, we must be mentally prepared for a rally to develop. Only when the range lows are broken and a trend below emerges can we say with confidence that a trend change has occured in the bigger picture. What’s important is that following the failure at a 2B Test of Top in the Dow 30, we’ve been on high alert for good reason.
The other indexes took a little longer to roll over than the Dow 30. On August 2 we stalked a short in ER to hold:
15:48:38 Mike: Squishing this chart toegther we also have larger and smaller rising wedges leading back to the top – could develop into running triangles and launch a new leg up, or…
Just the same, a failing / chopping Dow and an opportunistic short in the Russell 2000 do not a failed top of the broader market make, so we have been hedging our bets by stalking longs, primarily in technology and energy. The important point is that we’ve been alert to the potential of a significant pull back coming up now for a couple of weeks now, allowing us to narrow stops and take profit where it makes sense to do so.
How now, brown cow, where to from here?
Determining a course of action is fairly easy. Fortunately the pre-conditions for a trend change can help us determine if the trend-change is not occuring just as easily as the guidlines tell us one is occuring:
We will consider a significant trend change, from up to down, to have occured if the range low of the last two weeks a) breaks and b) a down trend on at least a 14 or 45M chart (lower swing highs and lower swing lows in those time frames) starts to form.
Is a trend change from up to down the “end of the bull market”? We’ve no way of knowing, without benefit of hindsight. But as generally more active than passive investors and traders, we don’t need to wait until 10 or 20 or 30% of our portfolio is eaten up by losses to decide that yes, that was indeed a major trend change!
Active investing carries a price – we won’t always get 100% of every move up or down, but we will avoid being on the wrong side of the market far more than passive investors will be. It takes more work, and a willingness to accept that we may have to re-establish positions exited recently, but for those willing to put in the work and remain dispassionate as to market direction, the benefits outweigh the costs.
Plus, we get to sleep more soundly at night when markets are moving down…
This is a special one-time (may become more frequent) run of statistics against the Dow Jones Sub-Groups Sector Indexes… lets see what’s happening at a 30,000 foot view:
SECTOR Statistics for Friday August 5, 2005
| Symbols in Up Swings | 7 |
|---|---|
| Symbols in Down Swings | 74 |
| Up/Down Swing Ratio | 0.09 : 1 |
| Advancers | 5% |
| Decliners | 95% |
| Unchanged | 0% |
| Up Bars | 2% |
| Down Bars | 95% |
| Inside Bars | 1% |
| Outside Bars | 1% |
| Close > 20EMA | 5% |
| Close > 50SMA | 74% |
| Close > 200SMA | 72% |
| 20EMA > 50SMA > 200SMA (trend up) | 58% |
| 20EMA < 50SMA < 200SMA (trend down) | 7% |
Quite a few sectors broke their 20 period moving average but this is not a huge surprise given the sideways grind a good deal of the market has been moving through for 1 to 3 weeks now. We should be looking at major stocks within the swing outliers and gap up/down the attached list of sectors.
More exploration on this subject to come.
—~Scan output for Friday August 5, 2005
—~With one or more events, by volume descending [22]
$DJUSSC : DJ US Semiconductors
$DJUSCT : DJ US Telecomm Equipment
$DJUSRE : DJ US Real Estate
$DJUSBT : DJ US Biotechnology
$DJUSAM : DJ US Medical Equipment
$DJUSCS : DJ US Specialized Consumer Svc
$DJUSDV : DJ US Computer Services
$DJUSAR : DJ US Airlines
$DJUSWC : DJ US Wireless Comm
$DJUSCM : DJ US Personal Products
$DJUSAI : DJ US Electronic Equipment Idx
$DJUSTR : DJ US Tires
$DJUSDB : DJ US Brewers
$DJUSPM : DJ US Gold Mining
$DJUSFH : DJ US Furnishings
$DJUSFT : DJ US Footwear
$DJUSAF : DJ US Delivery Services
$DJUSPP : DJ US Paper Products
$DJUSNF : DJ US Non Ferrous Metals
$DJUSMT : DJ US Marine Transportation
$DJUSFS : DJ US Forestry
$DJUSWU : DJ US Water Utilities
—~With the most events [22]
$DJUSAF : DJ US Delivery Services
$DJUSPM : DJ US Gold Mining
$DJUSAM : DJ US Medical Equipment
$DJUSWU : DJ US Water Utilities
$DJUSFS : DJ US Forestry
$DJUSMT : DJ US Marine Transportation
$DJUSNF : DJ US Non Ferrous Metals
$DJUSPP : DJ US Paper Products
$DJUSFT : DJ US Footwear
$DJUSFH : DJ US Furnishings
$DJUSDB : DJ US Brewers
$DJUSTR : DJ US Tires
$DJUSAI : DJ US Electronic Equipment Idx
$DJUSCM : DJ US Personal Products
$DJUSWC : DJ US Wireless Comm
$DJUSAR : DJ US Airlines
$DJUSDV : DJ US Computer Services
$DJUSCS : DJ US Specialized Consumer Svc
$DJUSBT : DJ US Biotechnology
$DJUSRE : DJ US Real Estate
$DJUSCT : DJ US Telecomm Equipment
$DJUSSC : DJ US Semiconductors
—~up/down in swing outliers [4]
$DJUSAF : DJ US Delivery Services
$DJUSDV : DJ US Computer Services
$DJUSFT : DJ US Footwear
$DJUSPM : DJ US Gold Mining
—~—Pattern matches follow—
—~BULLHARAMI [0]
—~PIERCELINE [0]
—~HAMMER [0]
—~DARKCLOUD [0]
—~BEARHARAMI [0]
—~NR7 [2]
$DJUSAI : DJ US Electronic Equipment Idx
$DJUSPP : DJ US Paper Products
—~OUTSIDEBARS [1]
$DJUSDB : DJ US Brewers
—~UPSWING PAUSE (experimental) [10]
$DJUSAV : DJ US Media Agencies
$DJUSBT : DJ US Biotechnology
$DJUSCL : DJ US Coal
$DJUSCS : DJ US Specialized Consumer Svc
$DJUSFC : DJ US Fixed Line Commun
$DJUSFE : DJ US Industrial Machinery Idx
$DJUSOL : DJ US Integrated Oil & Gas
$DJUSRR : DJ US Railroads
$DJUSST : DJ US Steel
$DJUSWU : DJ US Water Utilities
—~DOWNSWING PAUSE (experimental) [0]
—~Gap Up [6]
$DJUSBT : DJ US Biotechnology
$DJUSCS : DJ US Specialized Consumer Svc
$DJUSCT : DJ US Telecomm Equipment
$DJUSPM : DJ US Gold Mining
$DJUSSC : DJ US Semiconductors
$DJUSWU : DJ US Water Utilities
—~Gap Down [3]
$DJUSAR : DJ US Airlines
$DJUSNF : DJ US Non Ferrous Metals
$DJUSWC : DJ US Wireless Comm
Statistics for Friday August 5, 2005
Note: Statistics are compiled based on our custom symbol universe of the most heavily traded stocks.
| Symbols in Up Swings | 150 |
|---|---|
| Symbols in Down Swings | 588 |
| Up/Down Swing Ratio | 0.25 : 1 |
| Advancers | 22% |
| Decliners | 77% |
| Unchanged | 1% |
| Up Bars | 8% |
| Down Bars | 71% |
| Inside Bars | 10% |
| Outside Bars | 6% |
| Close > 20EMA | 22% |
| Close > 50SMA | 62% |
| Close > 200SMA | 65% |
| 20EMA > 50SMA > 200SMA (trend up) | 47% |
| 20EMA < 50SMA < 200SMA (trend down) | 17% |
Interesting – even though the net movement in the major market indexes (SPX, Dow, NDX, COMPX) was not that great, there has been quite a movement across a broad spectrum of sector indexes, as noted in a special run of the TrendVue symbol scanner against 81 Dow Jones sector indexes.