Market Strategy for Tuesday, January 22, 2001
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Good afternoon. I hope everyone had a good weekend. Here are some thoughts going forward, for this week in the markets.
The most important economic data scheduled for release this week, the Employment Cost Index, comes this Thursday. Next week features a two-day FOMC meeting, which will be the main economic event after this. For more information regarding the FOMC, please click:
federalreserve.gov
Schedule of Economic Data:
Tuesday, January 23
9:00 a.m. BTM-UBS Warburg Chain-Store Sales Index: For week of Jan. 20. Consensus Estimate: n/a. Previous: -0.3%
10:30 a.m. Redbook Retail Sales Index: For week of Jan. 20. Consensus Estimate: n/a. Previous: 2.6%
Wednesday, January 24
No economic indicators scheduled
Thursday, January 25
8:30 a.m. Employment Cost Index: Fourth Quarter. Consensus Estimate: 1.1%. Previous: 0.9%
8:30 a.m. Initial Jobless Claims: For week of Jan. 20. Consensus Estimate: 340k. Previous: 306k
10:00 a.m. Existing Home Sales: December report. Consensus Estimate: 5.04 mln. Previous: 5.22 mln (4.4%)
10:00 a.m. Fed Chairman Alan Greenspan testifies before the Senate Budget Committee
Friday, January 26
8:30 a.m. Durable Goods Orders: December report. Consensus Estimate: -2.0%. Previous: 2.5%
Let’s go over technical picture. First, we’ll take a look at the Nasdaq 100 Index. Last week, we built a scenario of a rising wedge on the daily chart, which has bearish implications. According to classic Edwards and Magee pattern theory, the minimum target, as we stated, was a test of the January 3 low, IF the wedge breaks to the downside, as it “should”:
ispeculator.com
Last Friday, price action went above the high of the wedge by a touch, and rather than thinking “breakout”, we thought “fakeout”. On this first test to the upside, the move indeed failed at the top of the wedge, on a gap up open last expiration Friday. It is therefore a fakeout, and the first event to expect is a pullback to the lower boundary of the wedge, which is not too far from here, in the 2600 zone. At the moment, we are there. What happens AFTER the pullback requires our immediate attention. We can now construct a couple of scenarios and formulate market strategy going forward.
We note some other observations of the NDX:
1. It is trading above the 20-day EMA;
2. It is testing resistance overhead supplied by the 50-day MA;
3. It is trading above the downtrend line that has been in effect since the last day of August 2000, when a test of the high of the bounce from the Spring lows failed.
As traders, we are neutral when it comes to the market. We are not required to render moral or any other kind of judgements vis a vis going long or short. We rely on the analysis of supply and demand and use price and volume to help us in this endeavor. It if wants to go up, we will position ourselves to buy. If it wants to go down, we position ourselves to sell. That’s is the trader’s job. In my analysis, I simply construct a couple of scenarios and my only concern is to find the appropriate spot to wait for the train to come. Preferably, I find a SPEEDING train going in my direction, and as it passes my way, I hitch myself to the side, James Bond style and go as far as it will take me.
As far as the NDX is concerned, we know that it has been consolidating here for weeks, inside a pattern. We know that areas like this, when it finally breaks, will give way to a good move. We must simply hold the hitch out, at this point.
QQQ Swing Trade Setup off the Daily Chart:
Given that the NDX remains above the 20-day EMA and the downtrend line, we will first give the upside the benefit of the doubt. IF the wedge ultimately fails and the NDX begins a new move downwards in earnest, we will attempt to board it later, once it begins trading back under the 20-day EMA and the downtrend line. Aggressive traders will have used our triangle techniques to play on the short side on an intraday basis. For more information, please refer to the following:
ispeculator.com
204.244.168.151
As of right now, we will construct an IF>THEN scenario for the upside, notwithstanding the wedge pattern. Patterns can and do fail, and this if so, this would be a signal of a powerful short term move that we would not want to miss, with an initial target of the December 11, 2000 high, just shy of NDX 2990, or around $75 on the QQQ. This is the trajectory we would like to see:
ispeculator.com
IF this is a new move up, THEN it will pull back, test and confirm that the topside of the red 20-day EMA and the green downtrend line (former resistance) is new support. We can trade the QQQ as a proxy for the NDX cash index. The QQQ is the Nasdaq 100 Index Tracking Stock: nasdaq.com
We can set a buy stop at the high of Monday, January 22, 2001, on a break of $67. If the order is filled, the initial protective stop loss order will be NO LOWER than the low of January 22, 2001, on break of $64:
ispeculator.com
Aggressive traders would place their stop loss orders at whatever the low of the day is when their buy order is filled. The goal is to ensure that your potential losses are limited and furthermore, to move it to a breakeven position as soon as possible. For more information regarding risk and money management, please see:
ispeculator.com
The scenario for the S&P 500 is similar. Those who would like to trade the SPY would use a buy stop strategy similar to the one we have devised for the QQQ:
ispeculator.com
Teresa |
