by Chris Curran
January 6, 2003
Last week, the NASDAQ Composite gained 39 points, the Dow rallied 297 points to, while the S&P 500 advanced 33 points. Volume was very thin due to the holidays.
The major indexes finished firmly to the upside in the holiday-shortened week, as optimism over the New Year led many market players back into stocks. The bulk of the gains took place on Thursday, when a stronger-than-expected ISM report brought back hopes of an economic recovery. The ISM Index has often been noted as Mr. Greenspan's favorite report as a gauge for the economy. Selective blue chip shares outperformed, while higher beta tech names lagged, likely due to tax loss selling early in the week.
Looking ahead this week, the real New Year kicks off as Wall Street goes back to work, and there are several catalysts that may be a positive for stocks. Another earnings season kicks off on Wednesday, and it's quite possible that there could be some upside surprises, given how many times numbers have been taken down over the last year. But, at the same time, we may see a fair share of profit warnings for the upcoming quarters due to estimates for 2003 being too high. There are inventory builds taking place in several sectors, creating an artificial sense of demand, which could also help results. President Bush is expected to announce a tax cut package on Tuesday, which is expected to include a proposal to cut taxes on stock dividends.
Technically speaking, the NASDAQ Composite needs to close above the reaction high at 1,393 to confirm the breakout above December's downtrend line. The December S&P 500 contract posted a 2nd close above December's downtrend line, and a close above the 12/17 reaction high at 911.40 would open the door for a larger move to the upside. In addition, the S&P 500 index posted a higher weekly Market Structure Low, and as long as the 12/31 low is held, should set up for a move above the December high (see charts below).
On a trivial note, 2003 will mark the 3rd year of President Bush's term. Since 1926, the median return of the S&P 500 during the 3rd year of a Presidential term has been 22.8%. The last time this rule failed to hold true was in 1939, when the index declined a modest .41%.
DAILY PATTERNS FROM OUR BASKET:
MAJOR INDICES
DJI- Doji, market structure high at 50-day MA support
NDX- Testing rising 50-day MA resistance
SPX- Doji, market structure high at 50-day MA support
Futures, ETFs, & HOLDRs
ESH3- Hanging man at 50-day MA support
MDY- Harami, market structure high
NDH3- Broke falling 20-day MA resistance, testing rising 50-day MA resistance
NQH3- Broke falling 20-day MA resistance, testing rising 50-day MA resistance
QQQ- Broke falling 20-day MA resistance, testing rising 50-day MA resistance
SMH- Broke 67-day MA & 100-day MA resistance, testing falling 20-day MA resistance
SPH3- Hanging man at 50-day MA support
Sector Indices
BKX- Spinning top
BTK- Market structure high, bear flag at 67-day MA & 100-day MA resistance
CYC- Market structure high
DFI- Evening star
DJUSAE- Evening star
DRG- Broke 50-day MA resistance, testing falling 200-day MA resistance
GSO- Hanging man, broke rising 50-day MA resistance
HMO- Shooting doji star
HWI- Hanging man, broke falling 20-day MA resistance, testing rising 50-day MA resistance
OSX- Market structure high at 20-day MA & 200-day MA resistance
RLX- Market structure high, broke falling 20-day MA support
SOX- Broke falling 20-day MA resistance, testing rising 50-day MA resistance
XAU- Ascending triangle, cup & handle
XOI- Testing 100-day MA support
XTC- Market structure low at rising 50-day MA support, broke falling 20-day MA resistance
For some insight into actual trading methods that we use to trade the QQQ, we've set up a page of actual trades and the reasoning behind them at Trading The QQQ and will be updating it a few times a week, as time allows.
Swing Strategy
Our strategy is to enter with an initial risk of 2-3% and a first profit objective of 5-6%. At 5-6%, we want to take profits on ½ the position, and then follow the rest with a trailing stop, preferably just under/over the previous day's lo/hi. This is nothing but a guideline. Market conditions and the stock's behavior should be considered at all times.
If a stock gaps significantly through the entry in the direction of the trade, wait for it to take out the first 15-minute high on long trades, or the first 15-minute low on short trades. This simple rule will ensure that there is follow-through, and will avoid many gap reversals that are so common.
DISCLAIMER:
This column is an information and education service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. Tradewinds is not a registered investment advisor. Tradewinds shall not be liable for any damages or costs of any type arising out of or in any way connected with the services of the company. Reprint or reproduction of this newsletter is strictly prohibited.
As always, do your own due diligence, and if you have questions, email me at Chris@tradewindsonline.net |
