Friday, September 2, 2005
Issue Contents:
| 08:35 | The Day Ahead Economic releases and news |
| 08:54 | Market Direction And trading plan |
| 09:29 | Swing Trade Setups Featured charts for Friday September 2 |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning, today is Friday September 2nd, the 245th day of 2005.
Before the open, index futures are flat to up marginally following a half-decent (pre-Katrina data only) labour report. The energy complex is pointing lower at present, thanks to a softening of the massive spike up in gasoline prices as some delivery from the region has kicked into gear.
Yesterday’s US Natural Gas Storage Report indicated inventory increases continued to hold NG at levels above the 5 year average, however total NG storage is below where it was last year at this time. Unfortunately for natural gas users, that was the picture pre-Katrina.
NG
Post-Katrina, the EIA reports that total US natural gas production is down by 10 percent, and this has the real potential to keep prices high for some time.
There are reports that Hurricane Katrina may have damaged four natural gas processing facilities on the Gulf Coast with a combined capacity of 5.5 Bcf per day, which is the equivalent of almost 10 percent of total national production. Follow-up reports have not indicated expected outages longer than a few weeks, with many units expected on line within a few days. A full assessment of some facilities, however, will require onsite inspections. If these or other plants are inoperable for any length of time, the loss could delay a recovery of natural gas production in the area.
Unlike oil, with natural gas there is no magic off-shore “OPEC” able to turn on the taps and flood the market. This market, as we’ve been reminding folks for some time, has been overlooked and under-discussed but that will change rapidly as heating costs will be 50 to 100% higher than last year if these prices hold into the winter.
If there is a silver lining in this cloud of rapid price increases, its that historically such parabolic moves tend to die almost as sharply as they were born. Lets hope that scenario plays out, rather than the formation of a new and much higher price base.
Early market closure: Ahead of the Labour Day Holiday, bond traders get to go home a little early while equity markets will trade into the normal close. On Monday September 5th, all markets in Canada and the United States will be closed.
US Market Calendar
- 8:30 am: Employment Report – August
- 10:00 am: Challenger Layoff Report – 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.
Lets take a moment to look at the big picture here and put the last few days in context.
Dow 30 Futures – Weekly Chart – The Dow Jones Industrials have been in a down-swing for 6 weeks, and are trading at levels which must find new buying support come in fairly soon or the 2005 lows near 10,000 will be the stop along the road map.
Dow 30 – Daily Chart – the not-classical setup is this: a rising wedge to resistance overhead. What makes this a little different is that volume in the classic rising wedge scenario ought to be declining or relatively flat.
As a result lets be open to the idea that the market may be willing to overlook the perceived impacts of Katrina (since very little about the intermediate term future of that region can forecast with any accuracy) and rally on the expectation that restoration brings economic benefits outweighing the costs.
However, if an attempt to break out of this consolidation zone is made, and fails, a strong signal of a potentially significant, longer-term, reversal of broader equity markets will have been transmitted.
Plan by Numbers
Lets take a simple paint-by-numbers approach for those not trading futures:
- IF markets move UP TODAY, without trading below yesterday’s low, we will want to add long positions provided price passes the test of yesterday’s high and trends higher intraday. We want to stalk long entries if Dow breaks yesterdays highs near 10520 (resistance) and hold longs if price ideally closes well over 10560.
- IF the above transpires, traders willing to stalk a short position will monitor markets closely NEXT WEEK for any failure of price to hold above the breakout point. IF price pulls below THEN a short position can be built up, with an expectation that this weeks lows will be hit as target 1, and ultimately 10,000 – 10,100 as target 2. Potential support lives near 10440 – if price breaks these levels then stalk a short.
- IF markets weaken TODAY, and break yesterday’s lows, the same basic prescription as above follows – establish short positions (or consider lightening long positions) and look to price to hit target 1, the base of the rising wedge, fairly quickly.
DIA can be used to traded the Dow directly, or any other broad market ETF (I tend to favour QQQQ and IWM at potential market up turns). I also use such signals as encouragement to add to, or keep existing, stock positions.
Featured setups from Thursday September 1, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups
Notes for the Day
- please note market direction for a trading plan to deal with the potential rising wedge on the daily charts.
- long weekend, much will be learned about Katrina damage over the weekend when traders can not do anything about it. Optimists will buy ahead, pessimists will not. Myself, I favour being conservative for my investment accounts; in my income generating futures accounts, anything goes although I may favour being flat at the end of today (and might have some company on that one!)
- Copper is surging higher today out of a multi-week consolidation. Some miners and a number of the gold companies will benefit from this. Heads up.
- Fairly big pull-backs in refined products – gasoline etc – which is to be expected on any news that pipelines or refineries are coming back on-line. Longer term the refinery situation might well be negative (positive for commodity prices) but in the meantime, expect energy trades to be somewhat bumpy.
- IWM longs of two days ago should have protective stops at b/e or better – a minor pull back today that doesn’t dig deep into Wednesday’s tall up bar might just head higher next week, so consider holding some of any positions but do follow the golden rule – never let a strongly profitable position ever turn into a loser. Ever.
- USD has held weak overnight but having pulled back so far so quickly, a significant bounce is likely; any weakness in gold as a result may be reason enough to take profits on some or all of recent positions, with a view to re-entering / reloading in the near future. I’m underweight gold relative to where I’d like to be and plan on holding most with a loose profit stop.
ETFS
DIA acts the weakest and remains my preference for selling short over the others (IWM, QQQQ)
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
TK – shipping, may benefit from increased intl gasoline shipping – follow retracement down 1 – 2 more days max, not too keep in the push up however and be very careful if filled until decent profit built up.
TKLC – tech, network signaling
Test of Top – Continuation
GNSS may break out here – must close strongly to hold… caution.
GLW bull flag forming near test of top
BBY bear flag trigger failure setup; if weakens later must exit – targets below remain open…
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
Retracement or Pause in Down Swing / Down Trend
AGI – gaming – probably some others in this sector to stalk too
FLEX – also check JBL, CLS
BNI – railway affected by Katrina also check CSX
BNI – perhaps bull flag on weekly but getting a little deep, potential failed top in big picture
Today's transcript.
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