Last week was the 4th consecutive week the S&P 500, DOW and Nasdaq closed up higher without a down week in between. Looking back one year, the last time this happened in S&P 500 and DOW was late Sep - Oct 06 while for Nasdaq, it was dated way back in mid Oct- Nov 05. Oh and did I mention that the last time this pattern occurred in DOW, it was aiming at the 12,000 mark. And now less than a year later, we have just surpassed the 13,000 level.
The week ahead has some heavy-weight figure speaking and also the important unemployment report. We shall see how they move the market... Mon: Personal Income & Personal Spending, Chicago PMI Notable earnings: SWN, ZBRA, CTX, BEAV, RSH, VMC, TSN Tue: ISM Index, *Fed Chairman Speaks @ 11am EST Notable earnings: ACS, ADM, CEPH, EXP, GYI, NVTL, UA, YUM, EOG, HOLX, JOE
Is it time for short term rebound in the airline sector? Looking at Amex Airline index, (XAL) it has tested $51.7 three times and in the last two sessions, printed a spinning top and hammer-like bar. Look at the last two times it tested support with these long lower tails - it managed to have a rebound. It tested support today (wed)and closed near its high, despite a $1 rise in Jun crude oil futures. Looking strong, but this rebound maybe a short one as there are many overhead resistance: 20MA,50MA,200MA.
CAL and UAUA are quite similar to XAL, at some support level printing long lower tail bars, but also having some overhead resistance.
IR is testing resistance for the 3rd time. It has so far been supported nicely by 50MA with higher lows.
Warning: Earnings to be announced this Fri, BMO. I would personally do a day trade if there is valid breakout or wait till after earnings to do a swing trade on pullback if it gaps up on earnings. I DO NOT recommend holding the position over earnings.
Likewise for WAT, which has been trading in a narrow range since April. I suspect the breakout will come on 24/4, Tue, as it is announcing earnings BMO.
LVS has been making higher lows and lower highs, forming a triangle. Watch for breakout. Earnings on 7 May.
I came across a useful tool-Market Carpets from stockcharts.com and would like to share with readers here.
The above "carpet" shows a bird's eye view of market summary, which includes bonds, currencies, commodities, world markets, major indices etc. As we know, inter-market relationships are important and this is a very good recap for the day. The redder the carpet is, the weaker the particular sector; the greener the carpet is, the stronger the sector is. Another feature I like is you can simply mouse over the carpet and details will show up (see gold & silver in the above carpet). Click on a sector and its price will be reflected in the chart on the top right corner.
This one is on S&P sectors, with the bigger carpet being the sectors and smaller carpets being stocks in those sectors. This one is showing the market on 1-2 Mar 07, where the market correction took place, hence a sea of red. Here, you can easily see which of the stocks in the same sector are weakest or strongest by just looking at the colour of the stock's carpet.
Other than the market summary and S&P carpets, there are a few other different carpets as well. You can also adjust the time frame to see past week, past month etc. Check it out to learn how to utilize it better. As you know, Simply Options Trader loves to use free tools and this is one of them!
Technician's Guide to Day and Swing Trading by Martin Pring is a good introductory book on technical analysis. The book starts off with chapters like Peak-and Tough Analysis, Support and Resistance, Trendlines, which give readers a background on how to indentify trends.
This book also discusses technical analysis in the form of price patterns, significance of gaps, moving average, bollinger bands and oscillators such as RSI, MACD, ROC etc and Pring's own proprietary KST (Know Sure Thing)indicator. Pring talks about where to place stops and shares street smart trading tips such as using intermarket relationship as a catalyst in the last 2 chapters of the book. A quiz is found at the end of the book, together with his KST formulas. This book also comes with a CD, which, in my opinion contains more or less the same content as what you have read on the book.
Two key take-aways for me from this book. One of them is the One and Two Bar Patterns, because I recognize there's room for improvement my identification of reversal bars. Second take-away is integrating oscillators, moving average and the parabolic indicator, to which Pring devoted one whole chapter on. The key take-away is not so much on the indicators themselves, but rather how to integrate them. Dr Brett has also often talk about the importance of integrating pieces of information to make trading decision to improve the probability of success.
I must add that the chapter on Where and Where Not To Place Stops was disappointing. The chapter was too short and not specific enough for one to learn exactly where to place a proper stop. But otherwise, this is a good introductory technical analysis book that doesn't contain too much jargon.
With the exception of INTC, which was up by $0.33 after earnings release, other major Tech stocks like YHOO, IBM and STX were all down after their earnings report post market. This latest batch of earnings does not go too well with the markets and with the Nasdaq lagging in today's action while the DOW and S&P 500 were up, we are likely to point lower tomorrow, given the extended rally in the last few days. Having said that, we have two other bell weather stocks announcing BMO tomorrow: MOT and JPM. If they release exceptionally good report cards, it may well be a different story for tomorrow.
This coming week has lots of economic data and earnings release on the plate. Plus we've got options expiration this Friday. With loadful of companies announcing earnings from this week onwards, swing traders, pls check earnings date before entry and exit prior to earnings release.
Mon: Retail Sales, Biz Inventories Notable earnings: C, LLY, GWW
Tue: Building Permits, Housing Starts, CPI, Industrial Production Notable earnings: YHOO, JNJ, INTC, IBM, WFC, PPDI, JEF, MEL, STX
The book, Way of Turtle - by Curtis Faith has garnered positive reviews from Dr Brett, Corey from Afraid to Trade, just to name a few. I have not read this book, so I was delighted when Curtis offered 2 free chapters of his book here.
In case you are wondering who is Curtis Faith, he was part of a group in a grand experiment conducted 20 years ago by two famous traders: Richard Dennis and William Eckhardt. The group of traders was trained and became very successful. Read Curtis's blog to know more.
MEDI gapped up today on high volume, broke the 5 year high (pink line) and consolidated around that level for the next few bars. Entry upon break of 12th bar high on 15 min chart above. Initial stop just below OR high. The 12th bar was a hammer with with support from 5EMA and closed above OR high as well as 5 year high. It formed a nice base and took off after lunch hours. Exit upon gravestone doji, a reversal signal, on 5 min chart below.
The first chart shows SPX vs XLF (representing the Financial sector) and the second chart shows SPX vs RUT (representing the small caps.
The XLF is highly correlated to SPX, as you can see from the chart above. And I personally use the financial sector as a market leader and a gauge to whether a move in the market is broad-based or not. Notice the XLF has been flat while SPX rally in April. This rally has not been broad-based and volume has been light. This is the time to exercise caution especially if you are long a stock or have a call position. I'm not saying the markets will turn bearish for sure, but the odds are it will be much harder for the market to move higher without support from the financial sector. There is a higher probability it will move down than up. The small caps are also facing some resistance while the SPX glide along.
For now, the charts are telling me to exercise caution and its not a good time to position for call options. But who knows, maybe the picture will change in the next few days with earnings kicking in and the FOMC minutes out on Wed.
The rally last Thurs surprised me as I expected a consolidation day ahead of the jobs data. On Fri, the jobs data came out strong and the futures market rallied. However, be mindful that the rally we had last week was on low volume.
This week is the official start of the earnings season again, and in the next few weeks, earnings result will set the tone for the market.
For those who are not aware, just to bring your attention to new portfolio margin rules by SEC wef 2 Apr 07. In short, the new portfolio margining rules align the amount of margin money required to TOTAL PORTFOLIO RISK and expands the scope of products eligible for portfolio margining to include equities, equity options, narrow-based index options, certain security futures products (such as single stock futures), and unlisted derivative. So we are no longer looking at standalone strategies and can 'enjoy' the netting off effects on margin requirement on a portfolio basis. See press release by CBOE.
In plain simple English, these are the resulting benefits: -Lower margin requirements => lower cost of trading => increase in trading volume => more liquidity and better bid/ask spreads
The first quarter in 2007 has come to an end, with the S&P500 and Nasdaq slightly up and the Dow down. This coming week, I think external factors will set the stage in the stock market.
Firstly, oil prices will continue to be in focus with the ongoing conflict with Iran. Watch for energy counters as well as airline sectors (inverse relationship.
Next, let's see how China will react to U.S. imposing tariffs on some goods from China. A trade war in the brewing?
Other than oil and China, the important piece of economic data coming out this week is the unemployment report. However, since it is out on Fri, when stock market will be closed for Good Friday, I expect the market to be relatively flat starting Thurs (assuming no market moving external news), as traders await this data on Fri and react on next Mon. So it should be a short week with most action occurring on Mon-Wed.
Posting will be light this week and the next. Have a great long weekend! Mon: ISM Index
Wed: Factory Orders, ISM Service Notable earnings: BBY, CC, MU, MON
Thurs: Notable earnings: STZ Fri: Good Fri--Stock market will be closed. However, the Unemployment report is scheduled for release on this holiday.