Thursday, September 1, 2005
Issue Contents:
| 05:55 | Market Statistics For Wednesday August 31, 2005 |
| 06:29 | The Day Ahead Economic releases and news |
| 09:13 | Swing Trade Setups Featured charts for Thursday September 1 |
| 10:49 | Quick Take: US Dollar |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 19:21 | Swing Scanner Results Thursday September 1 closing data |
| 19:22 | Market Statistics For Thursday September 1, 2005 |
| 20:11 | Update: US Dollar, Gold |
Statistics for Wednesday August 31, 2005
Our custom symbol universe of the most heavily traded or liquid US stocks is used as the base for analysis.
| Symbols in Up Swings | 408 |
|---|---|
| Symbols in Down Swings | 273 |
| Up/Down Swing Ratio | 1.49 : 1 |
| Up Bars | 54% |
| Down Bars | 20% |
| Inside Bars | 9% |
| Outside Bars | 13% |
| Close > 20EMA | 83% |
| Close > 50SMA | 50% |
| Close > 200SMA | 61% |
| 20EMA > 50SMA > 200SMA (trend up) | 34% |
| 20EMA < 50SMA < 200SMA (trend down) | 26% |
Production problems stood in the way of producing the pattern scan for yesterday—for today you can access this data in plain text format at: http://www.trendvue.com/latestscan—this location always contains the most recent pattern scan in text format. Over the next few days I’ll turning on a few improvements in this area as well.
The market so far seems to be acting as if the impact of Katrina on the broader economy will be short lived, or perhaps net-positive even in the short term, due to the massive amount of rebuilding required. The US economic engine is an amazing beast, never to be discounted.
Still, caution never hurts at such times. Reports of line ups for gasoline and price gouging brings back clear reminders of the last oil price-spike driven recession…
Good morning, today is Thursday September 1st, the 244th day of 2005.
Coming up today is the big brother report, the ISM Index, to yesterday’s disappointing Chicago PMI update. Often both the ISM and Personal Income & Consumption reports will set the tone for the day to come – coming up at 8:30.
Federal Reserve Governors and potential heirs to Fed Chairman Alan Greenspan’s throne have been signalling that the economy will weather the Katrina-induced storm – reading between the lines, the Fed appears set to continue its rate hike program at least into September.
Some disagree with these august folks:
“The financial markets, other than energy and bonds, have yet to fully react,” said Joe Duarte, who writes a daily market commentary. “If and when the markets, the Fed, and the general public wake up to what’s really happened here, all kinds of extreme reactions are possible.”
Could the market face a quarter or two of economic recession? You won’t hear the government utter the “R” word until its far too late to do anything about it, but over the next few months it will pop up with increasing regularity.
Possibilities indeed abound, and while the bumpy ride expected has been, so far, not too unsettling, we should be prepared for more volatility while the still-imperfect picture of the longer term impact of Katrina on the US energy supply continues to be refined. Imperfect information doesn’t stop opinions from being formed:
According to Colorado energy analyst Philip Verleger Jr., the storm cut gasoline refinery capacity by 2 million barrels a day. The U.S. consumes a little more than 9 million barrels a day.
In addition, he said, some Midwest refineries that rely on Gulf Coast oil appear to be facing supply problems, and that also could crimp gasoline supplies. Natural-gas prices also will soar this winter, he said.
“I expect that Katrina will have very severe economic impacts because it will force consumers to increase expenditures on energy drastically,” said Verleger, who foresaw a recession from the energy crunch.
Mr. Verleger in another report cites $15 as a possible target for Natural Gas.
Storm Impact
Yesterday, The U.S. Coast Guard reported at least 20 oil rigs or platforms missing in the Gulf of Mexico. Superficially, this implies lasting damage at least twice that of Ivan, however in some cases it appears that significant production capacity totalling hundreds of thousands of barrels may be offline now for many, many, months. The majors – Shell, BP, Chevron, had at least check not published detailed confirmation of their status. One problem is access – fuel in the area for helicopters is hard to come by at present.
The president of the regional electric utility, Entergy, said yesterday on CNBC that restoration of power in some areas will take a week to ten days, in some areas it will be months before they can even begin assessing what needs doing. Of particular concern are salt-water damaged power substations.
``I’ve never seen anything as devastating to the refining industry,’’ said Dan Robinson, president of Placid Refining Co., a closely held company. ``There are a number of refineries that have suffered significant damage due to flooding and water, and those that were flooded, I presume, will have a considerable amount of work to do to get their plants running again.’’
Eight refineries in Louisiana and Mississippi were closed yesterday, halting at least 1.79 million barrels a day of refining capacity. Another three are operating at less than capacity because power or pipeline failures have reduced supplies of crude oil.
``Each day that goes by, you’re dipping more and more into the inventory, and the inventories are already very tight,’’ Sal Ilacqua, an oil analyst at Monness Crespi Hardt & Co., said in New York. (Bloomberg)
Net impact at this point: US fuel production (not oil production) is down by 10% while demand continues higher and refinery capacity utilization, prior to the storm, was over 97%. There is real potential for nation-wide impact.
Some bright news – Colonial Pipeline announced yesterday that they had restarted their pipeline, albeit at a reduced capacity of between 25 and 35%, until they can install power generation equipment along the section affected by Katrina.
Elsewhere in the world, if the domestic situation were not already bad enough, workers in Nigeria are planning a nationwide strike possibly starting any time within the next week. Ironically the strike is in protest of Nigerian domestic fuel prices, which will then go up world wide as a result.
US Market Calendar
- 7:45 am: European Central Bank Interest Rate Policy Announcement
- 8:30 am: Initial Jobless Claims – Aug. 27th week
- 8:30 am: Personal Income & Consumption – July
- 10:00 am: ISM Index – August
- 10:00 am: Construction Spending – July
- 10:30 am: EIA Weekly Natural Gas Storage Report
- 4:00 pm: Auto Sales – August
Canadian Market Calendar
- No scheduled releases
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.
Featured setups from Wednesday August 31, 2005 closing data symbol scan.
Jump to: Long Setups | Short Setups | Special Situations
Notes for the Day
- Expect more volatility; Natural Gas storage report 10:30 am, however this is last week’s data. The market may continue to rally for another few days on expectations that Katrina is a big economic windfall for some companies, but clearly there are many losers in all this. What the ultimate judgement is on the balance sheet of the market, and life, won’t be known for weeks, months and years. In the meantime…
- As you know, even as I’ve been trading energy markets long at these levels, I keep signalling caution. Broken record time – please be careful. In this or a second post I’ll add a few names which have not broken out and discuss what to do with those that have, but the bottom line is commodity and stock prices in the producers have been stretched very far and for some time. Sudden reversals at such times are not uncommon – ensure you have a stop loss (and profit taking) strategy suitable for your investing temperment, before the open, before a trade!
- Some long, some short, in non-energy sectors. Aside from hurricane-related strength (steel, some builders and supplies) which will likely abate in the days to come (but may return in weeks and months to come once the ‘benefits’ from rebuilding actually show up on bottom lines), the question we have to ask ourselves is whether Q4 is likely to weaken as a result of what’s going on. In the shorter term, any decent setup will do, in either direction, but its nice to get ahead of the game as well for the longer term. Debate still out on this one…
- Energy futures are hanging around the close except NG which is off 1 – 2% depending on contract (big run up lately…. very very big) and refined products which are all up, in some cases substantially so.
ETFS
QQQQ – long signal triggered yesterday – move longs to b/e stop asap!
IWM – Russell was also very strong yesterday – if price breaks the resistance immediately overhead, it may just revisit 2005 highs. If its going to fail it will be soon – no short setup on the daily, intraday patterns must be used if interested in short exposure here.
DIA – Dow is a good example of where the broader markets sit – right in the middle of a very large range, could easily head lower after a minor bounce to key resistance within 1 – 2 days higher. Long setup discussed earlier this week triggered – move stops to break even or better asap.
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
JBL – contract elect. mftr – this is a stock you buy on a test of bottom if you believe the economy is going to hold or improve upon strength. Advise caution as price is trading under the uppermost trading range. This setup is one of the more useful – hold only if closes with sufficient profit to move a stop to break even with some breathing room.
Retracement or Pause in Up Swing / Up Trend
NSM – semi with strength
Test of Top – Continuation
Energy: Note that many of the leaders have already broken higher out of the recent range; we must first be concerned that price may pull back and fail at these tests of tops, but likewise, occasionally in a strong trend price doesn’t pause and keeps on going. If not already in the sector and interested there is no choice but to be aggressive and stalk opportunities, even at these prices.
But be aware: you may be buying near a top, literally. This isn’t as scary as it seems – of course risk is always present when we trade, and potential tops feel even risky, but consider this—price got here because it is strong. There is at least a 50/50 chance it will continue, and those odds are likely higher than that.
The key to buying tops is to know to get out quickly if it doesn’t work.
To help minimize risk, there’s always diversification via ETFs such as OIH, XLE and XEG:C (TSX).
OIH – oil service holders ETF
XLE – energy ETF
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
JNPR – coms without strength, as is CSCO
CSCO
INTC – semis without strength
GM – autos, and F, may see some short term pop on expectation of all the car buying from victims, but this isn’t going to happen overnight.
F
WDC – hard drives – much stronger than STX Seagate – follow bounce up 1 – 2 days max if untriggered today.
NYB – financial – some names in this sector have quite weak charts
USB – financial, ditto
Special Situations
HD – long – backed off after some intial post-hurricane euphoria (by investors, not victims) – pause here to buy above in case it can head higher now.
COH – a retailer you buy if you think the middle and upper class of society need more handbags! Could be stalked long for a break of range low if price weakens here on lower economic growth expectations.
The USD, as we’ve been discussing over the past few days, is at a critical juncture as it is reaching the point of reversal from what had been an uptrend from early 2005.
USD Index, Weekly – uptrend still intact on the weekly but failure here will push price below the uppermost trading range in this trend, which is a potential sign of trend reversal.
A much busier USD Index daily chart showing a head and shoulders pattern, and price failing at resistance formed off the neckline. Targets below.
Today's transcript.
Click on the title above to expand this document.
Thursday September 1 closing data
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Statistics for Thursday September 1, 2005
Our custom symbol universe of the most heavily traded or liquid US stocks is used as the base for analysis.
| Symbols in Up Swings | 518 |
|---|---|
| Symbols in Down Swings | 162 |
| Up/Down Swing Ratio | 3.19 : 1 |
| Advancers | 52% |
| Decliners | 47% |
| Unchanged | 1% |
| Up Bars | 67% |
| Down Bars | 15% |
| Inside Bars | 8% |
| Outside Bars | 7% |
| Close > 20EMA | 52% |
| Close > 50SMA | 51% |
| Close > 200SMA | 61% |
| 20EMA > 50SMA > 200SMA (trend up) | 39% |
| 20EMA < 50SMA < 200SMA (trend down) | 25% |
From our brief earlier today. target 1 is hit, on a day where the US dollar takes it on the chin, registering one of the largest single day drops in 2005.
US Dollar Index, Daily – first target hit
We’ve been stalking dollar weakness for a number of days now; the recent sharp move up out of a period of relative weakness was a heads up – often price tries to break a range to one side or both before continuing in the dominant direction, which lately has been down for the greenback. Anytime price starts to pick up speed out of consolidation, its time to pay close attention.
Yesterday there were intraday opportunities in the precious metals sector; today’s inside bar in Gold was also a useful heads up for a potential reversal in the metal itself.
10:18:12 Mike: USD sinking quickly since; hard to know if this will push it back into the lower most range again but that would be very bullish for Gold – intraday opportunities ought to be followed up on in that sector just in case.
Gold – pushes above nearby resistance on a very big range day; 2005 highs not far away. Gold-sector trades ought to have partial stops at break even and trailing stops mid-way up the range of the past two days. Ideally, if this is a resumption of the uptrend, price won’t hang around too long here near the breakout of this consolidation zone.
What’s With The Dollar?
What’s behind the move? Pundits speculate its as a result of growing apprehension that the economy is slowing. Yesterday’s Chicago PMI and this mornings ISM Index help to reinforce that view, so the natural trader reaction is to assume that, one of these days, the Fed will put the brakes on raising rates.
Or, perhaps dollar holders are simply nervous about the state of the energy situation. Shortages, line-ups, price gouging, pipelines shut down, major infrastructure destroyed – there’s plenty there to worry about.
Record oil prices and destruction from Hurricane Katrina caused traders to increase bets the Federal Reserve will only raise interest rates one more time this year. President George W. Bush will meet with Fed Chairman Alan Greenspan today, the White House said. A widening rate gap between the Fed and the European Central Bank has driven the dollar up 8.9 percent this year.
``It’s the worst of all worlds,’’ said Andrew Busch, currency strategist in Chicago at Harris Nesbitt Corp., a unit of Canada’s fourth-largest bank by assets. ``Clearly there’s been a deceleration of the manufacturing sector. That’s hurting the dollar, bottom line.’’1
Quite possibly investors are a little unnerved that President Bush is meeting with Fed Chairman Alan Greenspan – runs on the dollar have been precipitated in the past by currency traders voting with the dollar, so to speak, against major spending plans of past US presidents.
Or, it could be the season, as we head into fall and Monday’s just never quite feel as comfortable in the fall on Wall Street as they do in other seasons. Many have long memories of Black Monday (or Terrible Tuesday).
“It is probably fair to say that the very efficiency of global financial markets, engendered by the rapid proliferation of financial products, also has the capability of transmitting mistakes at a far faster pace throughout the financial system in ways that were unknown a generation ago, and not even remotely imagined in the nineteenth century.”—Alan Greenspan, October 14, 1997
Certainly with the popularity of currency trading in the non-professional trader community, that’s one message from Mr. Greenspan which both reasonates and is simple to understand.
1 Dollar Declines as U.S. Factory Index Suggests Slower Growth