What Will The Weekly Price Bar Look Like?

I’m starting this week off in similar fashion to last week by looking at moving averages and identifying primary trends. Watching primary trends helps smooth out trading noise and prevents reacting to every little wiggle. I’ve marked in red the trend changes from the prior week. Among the major averages, SPX, QQQQ and FXI all broke the 50 day SMA. I don’t follow it in my primary trend chart, but DIA is sitting right at the 50 day SMA.  As you will see below, earnings reports are thinning out a bit but this week is filled with economic data. While the break of the 50 day SMA on these averages is technically bearish, breaches of these support zones happen all the time. It is too early to tell whether this is a real break or a fakeout.

So what would I consider a confirmation of this apparent breakdown? First, I’m waiting for the economic data this week including the jobs report. While I await the economic data, I want to see the market follow through and trade below these averages for more than just 1-2 trading sessions.

Second, for those that read my blog on a regular basis, you know that I’ve been following the dollar religiously. The dollar has broken its trendline from March. I consider this to be a change in market structure and potentially the removal of one of the major catalysts moving the market higher.

This breakdown is enough to cause me not to play this selloff as a support bounce. Also note that FXC (USDCAD) broke its 50-day SMA last week. But, I at least want to see UDN (breakdown) and UUP (breakout) move through the 50-day SMA before I consider this a trend change.

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You can get a complete list of the earnings reports and economic data by clicking on the applicable tabs in the sidebar (links to briefing.com), but below is my summary of what I consider the important economic reports and a sampling of the earnings reports that I will be looking at.

Similar to last week, I’ll be looking at this week by trying to anticipate what the weekly price bar will look like rather than getting caught up with the daily price bars. If you don’t slow things down and take this approach, I think you likely get chopped up. Below is my best guess on how Monday-Friday plays out.

Monday: Likely a lot of movement after such volatile sessions. Whatever direction the market goes, many pundits will be saying that Monday’s action is critical even though it isn’t. It might be that the market moves higher and many will say we have a support bounce and that this is the next leg up. If the market goes lower, it will be considered a follow through from Friday proving that the market is going lower (which also won’t be true). Now, with the CIT bankruptcy, there will be even more noise. I don’t consider this a reason to take my eye off the ball. This is not Lehman #2.

Tuesday: Everyone waiting on ADP and FOMC meeting on Wednesday.

Wednesday: Likely a lot of movement early when people over analyze the ADP number one way or the other. Unless ADP is very extreme in one direction or the other, it likely is just noise. If it goes hard in one direction, it might cause traders to take a bet on Friday’s number (unlikely – especially because ADP is so unreliable in forecasting Friday’s number). Things likely slowdown and then get volatile immediately before and after the FOMC meeting. Unless the Fed gives us something new, such as telegraphing an imminent increase in interest rates, this likely turns out to be noise as well. I’ll be watching the direction of the dollar very closely. If the dollar breaks its 50 day SMA, I could see shifting my portfolio to a slightly negative delta.

CSCO and QCOM report after the close. Both are major components of the QQQQs and are worth watching. With AMZN and AAPL already at or exceeding all time highs, the laggard components need to get going for the QQQQs to move higher. AAPL and AMZN can’t do it all alone.

Thursday: By Thursday, I’m hoping to have a better feel on the direction of the dollar. However, despite what happens on Wednesday, by the time Thursday rolls around I’m just waiting on the jobs number on Friday. So let’s say there is a dollar breakout after the FOMC meeting and the market goes lower (dollar rising, all averages confirming breakdown), I’m still stuck waiting for the jobs report on Friday.

Friday: There are a lot of variables during the week, but doesn’t the week ultimately come down to the jobs number? Imagine a great week but an unemployment rate with a 10 in front of it? Change gears. Imagine the unemployment number comes in at 9.5% and all the spinning heads celebrate that the unemployment rate has peaked and that the market has correctly predicted a recovery.

So with that kind of script, my only point is not to get overly excited on Monday or Tuesday. This is likely a keep it hedged week and pick your spots even if some noise early in the week makes it tempting to trade directionally.

TRADING IDEAS

Many of my ideas from last week are still on my radar and I already own some of these. Check out my prior posts on MON, MOT, PVTB, REV and SNDA. AZO, NFLX and BDK from last week’s Sunday night post are also still good ideas.

Other ideas:

USO continues to bang up against the 300 day SMA at $41. A move over the 300 day SMA would also be a breakout over the trading range. I think this only moves higher if the dollar doesn’t breakout.

BLK could be good for a trade in either direction. If we get a bounce off the 50 day SMA, I’ll be looking to see if it can take out the all time high on volume ($225 range). It broke this level before earnings, but it was on low volume and the breakout failed. If BLK fails to hold the 50 day SMA, I think this one has the potential to fall to $180 pretty quickly and it could then potentially retest the 200/300 day SMA at $160.

§932 · November 1, 2009 · BLK, USO, WFT · · [Print]