Why It Should Be A Good Trading Day
The first part of today’s column is meant for the
Wall Street analyst, who just may, on the off chance be reading my
column and wondering who the heck is this guy (while also trying to search for
someone who has the answers, since they surely do not). I know that TM customers
are far more insightful, but it will serve as a review anyway.
As you can see from the chart above, not only does it depict a rather ominous
head-and-shoulders pattern, but unless I failed geometry (I aced geometry, the
only one in my school, failed algebra, though), I do not see the possibility of
any meaningful rally taking place in the market since:
- No base has been built, and…
- The angle of the recent trend is about 70 degrees, and it is not up and to
the right, it is down and to the right. Â
So first of all, yes, there will be some bumps in the road (i.e. rallies),
but the trend is down.
Turning back to TM readers, this chart also does a good job of explaining why
we have been so rangebound for the last few months. Sure, the Iraqi situation
does not help, but at a critical technical juncture, trading around a major
neckline, there will be a big battle between buyers and sellers. This battle may
choose a victor soon, though. Either the geopolitical mess is cleaned up,
inducing a rally (short-lived in my opinion), or we break through the October
lows, which puts a whole new spin on things.
Even as we methodically ground lower on Friday, the sense of panic never once
set in. The CBOE put/call ration remained
below .65, a clear sign of the complacency/speculation. Heck, who am I to say
that I have all the answers? We may very well rally, I just do not see any
convincing signs technically, or even fundamentally.
In terms of a rally, it is quite possible to have on off these current levels
based purely on:
- State of The Union speech on Tuesday. It is hard to imagine President Bush
not coming on without some detailed plan to solve the ills of the economy as
well as the Iraq situation. That in and of itself may put a bid in the tape.
However, turning to the day ahead, it should continue to be good
trading. Thursday and Friday finally offered up some decent price action. Throw
in a little more downside pressure, and you may just see some panic selling, a
daytrader’s best friend. The game plan remains the same, look for a handful of
decent setups in the opening hour and a half, after that remain on the sidelines
unless a truly compelling setup is spotted. Depending on whether or not this
morning’s gap lower incites a little panic, I will be looking to fade the
opening.
Stocks like
(
HPQ |
Quote |
Chart |
News |
PowerRating),
(
TWC |
Quote |
Chart |
News |
PowerRating),
(
MER |
Quote |
Chart |
News |
PowerRating),
(
TYC |
Quote |
Chart |
News |
PowerRating) and
(
MWD |
Quote |
Chart |
News |
PowerRating) continue to offer ample liquidity and range. Remember, the
market is trading in a very methodical manner, air pockets intraday are not too
common. As a result, adhere to your stops and don’t get too “spooked” by little
jigs and jags. Unlike the more volatile markets a few years ago, the jigs and
jags amount to nothing currently. This is also a valid reason to rely a bit more
on a five-minute chart for entries and exits that the one-minute chart.Â
Turning to some bigger picture themes, as I do from time to time, there are
some interesting setups within the currency markets. With the recent turmoil
globally, the Swiss Franc has been a major beneficiary, as it always is in time
of uncertainty. However, as mentioned above, with international support as well
as domestic support waning for the war on Iraq, President Bush is going to be
forced to end this in some way, shape or form very soon. The spike in oil prices
is eating away at an already weak economy. The third year of a presidential
cycle is key to re-election hopes. So, any solid resolution should favor a
sizeable pullback in the Swiss Franc, as well as the price of gold and a rally
in the dollar, which is already extremely oversold and sporting extreme bearish
sentiment.
Also within the currency arena, have you noticed the dramatic rise in the New
Zealand dollar, the Australian Dollar and the Canadian Dollar? The common theme
is that they are primarily agricultural-/commodity-based economies. So, despite
the global economy being in the tank, raw material prices are rising, whence the
currencies of these countries. While they are a bit extended currently, a
pullback may offer a nice re-entry.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 901 | 1048 |
| *893* | 1041 |
| 884 | *1029* |
| 875-77 | *1008-11* |
| *868* | 996 |
| *858-61* | *981-84* |
| Â | 964 |
| Â | *947-50* |
As always, feel free to send me your comments and
questions.