i-Trader

Onward and Upward

The Rally Continues As this is being written midday on Wednesday, the expected reflex rally has booked 278 pts of the expected 200-300 pts rebound in the DJZ4. The DJ traded up to 9975 with the US dollar up to 8548 and the US T-Bonds down to 113'10. The markets are now approaching short-term resistance and support levels. One possible scenario I'm watching for is continued movement in the past two-days' direction into the US election on Nov 02, setting up a reversal to test last week's extremes. The maximum targets for DJZ4, FVZ4, TYZ$, USZ4 and DXC are 10075-125, 110'24, 112'24, 112'16 and 8640-80 respectively. Note that DJ10000 however is a key psychological level to watch as well as there being strong resistance at 10015-10035.

08.22.04 - Interest Rates Headed Higher Soon?

Never Fight the Big Boys I was doing a quick scan of my charts for the upcoming week and came across one potentially ominous piece of information. I watch the committment of traders data in some markets for confirmation of possible market reversal points. The "big boys" (commercial traders) are rarely incorrect in their market assessments – when they begin taking a large position in one direction it’s time to sit up and take notice. By nature they have deep pockets and are therefore often early in establishing their play, but ultimately they win out.

This past week’s data demonstrates that the commercials are betting that interest rates are headed higher (bond and notes lower). As laid out in the Friday 08.20.04 update, US notes and bonds up against major resistance levels. The last time that commercials were this negative on US interest rates was in late Feb and early Mar 04, roughly 2-3 weeks before Treasuries topped out and reversed with the 30-year bond dropping over 13 pts during the next 1-1/2 to 2 months. Clearly, traders need to be on alert for reversal signals. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and Friday 08.20.04 may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion.

08.20.04 - Outlook

How High is High A quick update this week. Last week I called for a short-term rally of 200-300 pts off the 08.13 lows. As of Friday, the DJU4 booked 355 pts, a 3.6% move in one week. Barring a close above 10140 (see below), a short-term pullback to the 9975-10000 level is likely though there may be one more thrust higher to the 10175-10200 zone.

Last week's outlook specified a 9800-9875 support zone and 10025-10100 resistance area. This week's action revises the expected range to 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top. Given that the major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff, a short-term pullback is in the cards until the market can post a close above 10110-10140 to solidify the 9775 low.

While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments. The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower. Friday may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

As for crude oil, the rally continued with Oct crude, now the front month, tagging 48.37/bbl on Friday. Last week with the market at $46.02 on the close, I stated, "... CLV4 based in a 600 pts range for nearly 2-1/2 months before the breakout move. Therefore, the momentum is to the upside with a potential target of $48-50/bbl." Now support is at the mid-40s and though a short-term failure is possible at current levels, only a close below 4400 basis the Oct 04 contract would indicate a short-term top. Pullbacks to the 4400-4450 level must be considered a reaction to a major upmove. A close below at least 4100 is necessary to confirm a failed breakout.

08.16.04 - Gasoline Prices

Media Exaggeration This chart illustrates the fact that gasoline prices are NOT at record levels when adjusting for inflation. Prices would need to move another 70-80% higher to match the highs seen in the 1970s and 1980s. Refer to my recent article for more details.

08.11.04 - Cisco and Crude

Opposing Forces Tuesday afternoon the market rallied strong after the 25 bps rate hike. After-the-bell however Cisco (CSCO) announce earnings inline with expectations. This wasn't good enough and tech stocks headed down hard overnight. Just as was the case Tuesday, 9870 proved to be the area to watch. A few wild gyrations in the energy pits saw the indices move inversely to crude pices, the most pronounced move mid-moaring follwing the API inventories.

The day sesison opened with price action trying to hold ground but the tape (advance-delcines, NYSE ticks, trin) was telling a different story. An opening pop met strong resitance and pushed the DJU4 down to 9835 in the first 30 minutes of trading. This low was 95 pts below Tuesday's session high on the market close. The sellers were in trouble however with the erngy marekt providing the fule for a rally. Following the weekly API inventory data, CLU4 tanked and the stock indices rallied. The DJU4 moved 80 pts higher, stalling just below the prior day high before stalling and falling back to key support at 9870 by noontime. A midday consolidation between 9870 and 9910 set a high probabilty pattern. In an online trading room, I posted this message with the DJU4 trading at roughly 9875-9885:

[14:29] ...seen today's pattern lots over time - trade lower overnight on post market news, try pop on day session open, then drop ; then wicked reversal followed by consolidation and a breakout later in day to new session highs
[14:30] if it plays out, poss 9950-9970 upside (has to overcome some heavy selling on A/D tho

Thirty minutes later the DJU4 had set a new sesison high of 9929 before trading up to 9947, 60+ pts from the "alert point" at 14:30ET. The day settled up 14 pts at 9931.

Wednesday continued to carve out the expected range consolidation between 9800-9850 and 9950-10000. The NDU4 still has an unfilled gap at 1346-1353. Will Dell's (DELL) news today provide the fule for the move? A close above DJU4 9965 would stabilize equities with a close above 10110-10140 necessary to establish a bottom. Note that the pre-employment number close was 9933. A close back above that level would be a short-term positive.

Continue to watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. Tuesday's reaction to the FOMC rate hike pushed the notes and bodns back to near their employment day (08.06.04) breakot areas. A close in the US dollar index above 8935 would confirm the move.

08.10.04 - The News

Another Rate Hike Evidently the FOMC sees something that the rest of the country is missing, besides inflationary pressures. The market however put a positive spin on the 25 bps rate increase.

The market broke out of Monday's consolidation range off the open and moved higher until establishing a late-morning consolidation. The range held into the FOMC news at 1415ET, preceding a quick 48 pts move lower for the DJU4 to test the breakout area. The buyers liked what they saw and just as quickly reversed the major indices higher. "...post-news levels to watch on DJU4 are 9770 and 9870...", with the buyers pushing the market easily through this upside level. By the final hour, the DJU4 set a new session high of 9930, before settling up 117 pts at 9917. Note that the pre-employment number close was 9933. A close back above that level would be a short-term positive.

In Tuesday's report I stated, "...in the short-term with a reflex rally meeting stiff resistance at 9900-9930... equate to 9925-9935." Tuesday's breakout pushed the DJU4 up to that resistance zone (recall that 9900 was major support prior to employment Friday). Also, the NDU4 and SPU4 gaps are being tested with the SP gap filled Tuesday and the NDU4 gap now down to 1346-1353. It's showtime for the buyers. A close above DJU4 9965 would stabilize equities with a close above 10110-10140 necessary to establish a bottom. Note that the pre-employment number close was 9933. A close back above that level would be a short-term positive.

Continue to watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. Tuesday's reaction to the FOMC rate hike pushed the notes and bodns back to near their employment day (08.06.04) breakot areas. A close in the US dollar index above 8935 would confirm the move.

08.06.04 - Bad Number

Payrolls Grease Skids Rarely do I check in with CNBC, however this morning I happened to switch from Bloomberg to CNBC just after "the number". What I expected was the typical "spin" from CNBC. However, that's not what I heard. Economists were expecting 240K, 208K more than the government's reported number of 32K. On the news, host of Mark Haines, proclaimed, “This is a bad number. This is a bad number for the economy. This is a bad number for President Bush. This is just a bad number.” Surprise.

The DJU4 dropped 125 pts from an opening high of 9965 to 9840 in under 25 minutes with 107 pts of the move in under 3 minutes. Loads of stops were hit at Thursday's low as well as last Monday's low of 9900. A rebound back to this key area as the cash markets opened at 0930ET was met by more selling producing a new session low of 9835, tagging the 05.12.04 low. Except for an extreme trin reading off the open, the tape was only modestly negative with advance-decline readings substantially stronger than Thursday. A consolidation in the first 45 minutes' range with less volatile swings continued into mid afternoon. The selling resumed as the bonds market closed, setting a new session low at 9776. The day settled down 133 pts at 9800, the lowest close since 12.05.03. For the week, the DJU4 moved 412 pts high-to-low, down 3.3% on a closing basis.

Notes and bonds traded in the oppopsite directon on the news, slicing through key resistance and trading up to early April 04 highs before stalling. The 30-year bond, USU4, retraced 75% of the Mar-May 04 drop at Friday's high. The US dollar having languished in a roughly 100 pts range fro 7-1/2 days broke down 100 pts, a measured move, before finding support at mid-Jul levels.

The bulls suffered a severe blow Thursday and Friday and it will take time to heal the wounds. Expect a consolidation to develop between 9800-9850 and 9950-10000 in the short-term with a reflex rally meeting stiff resistance at 9900-9930. Note that the NDU4 and SPU4 have unfilled, real gaps at roughly 1345-1353 and 1074-1077 as well. These equate to 9925-9935 on the DJU4. A close above DJU4 9965 would stabilize equities with a close above 10110-10140 necessary to establish a bottom. With back-to-back active sessions Thursday and Friday, no economic news on deck Monday and the FOMC meeting Tuesday, Monday will likely be a zig-zag consolidation day.

Also, watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. A close in the US dollar index above 8935 would confirm the move.

08.04.04 - Oil - How Long?

OPEC Running on Empty? I found an interesting article in the latest issue of Popular Science magazine. Anyone familiar with the Hubbert curve?

It seems like many traders believe that oil is considerably overvalued and continue to short the recent breakout of a 2-1/2 month short-term consolidation. The upside target for CLU4 (Sep crude) is the $48-50/bbl level. However on a longer-term basis, the move may be in its infancy. On a real basis, crude would need to trade up to $60-90/bbl to match the highs set at the onset of the Gulf War and in the late 1970s.