Hot Pick Of The Day

[New-born baby]

Hey Newborn. JOYG is approaching weekly fuzzy C resistance at 45.50 from May this year. Bullish bias above and bearish bias below. I'll be looking for this kind of setup: Wait for it to trade at 47.75, then buy any 2% discount at 46.80, with a 3% stop under the fuzzy C support at 45.40. Target +35% to 63.60 gap. R/R is over 10 and I like 'em like that.

Thanks Spike. I see it, and thanks for the plan. It is always nice to have a plan And anytime you want to throw technicals up on the board, let's have it

[New-born baby]

Slowing Economy/Dave want to comment

Okay, here's proof that the economy is slowing: automobiles. That's about 28% of the US economy.

http://msnbc.msn.com/id/14628921/

And now this quote on the market's approaching double top:

Our favorite Elliott Wave oracle, Harry S. Dent Jr., sees another big dip ahead. In his September newsletter (out today), he writes:

“There is the potential for substantial downside risk in many sectors, as the Dow is likely to retest 10,650 and could retest 10,000. We should see the strongest buy signal since October 2002 and March 2003 between mid-October and the end of the year -- but until then, our signal in early August to get more defensive still looks like the best strategy (...)

“Any minor movements to the upside near term should be used to get more defensive, as the Nasdaq has already hit our first resistance level at 2,190. We will be looking carefully for the best buy opportunities in the months ahead. (...) We expect this correction to be over by late December 2006 or early January 2007 at the latest, and we still expect a 40% to 50% rally in the Dow to targets between 14,000 and 15,000 by late 2007 or early 2008 as the Fed lowers rates by at least 50 basis points.”

[Rob]

Okay, here's proof that the economy is slowing: automobiles. That's about 28% of the US economy. ttp://msnbc.msn.com/id/14628921/

NBB, although admittedly I read through that article rather quickly, I fail to see where you find "proof" of a slowing economy in there. The gist of the article that I came away with was that sales of trucks and SUVs were slowing, whereas sales of smaller and midsize cars were increasing.

This is to be expected with fuel prices being what they've been over the past year or so. But this chart from the Bureau of Labor Statistics would indicate that the economy seems to be clicking along pretty well:

[New-born baby]

NBB, although admittedly I read through that article rather quickly, I fail to see where you find "proof" of a slowing economy in there. The gist of the article that I came away with was that sales of trucks and SUVs were slowing, whereas sales of smaller and midsize cars were increasing.

This is to be expected with fuel prices being what they've been over the past year or so. But this chart from the Bureau of Labor Statistics would indicate that the economy seems to be clicking along pretty well:

Thanks, Rob, for your questions. The answer is this: at the end of the article it said:
1. GM is cutting production 12%
2. Ford and Chrysler have already announced production cuts
3. Navistar is laying off 380 due to Ford production cuts.
4. Something not in the article: one of the best times of the year for auto sales is Christmas time (4th quarter). To have them on the lot in December means Sept/Oct production.

I am saying that since auto production is 28% of US economy, a slowdown there hurts the economy in general.

Any response to the Elliott Wave article? I'm curious to know your thoughts.

[New-born baby]

One more thought

NBB, although admittedly I read through that article rather quickly, I fail to see where you find "proof" of a slowing economy in there. The gist of the article that I came away with was that sales of trucks and SUVs were slowing, whereas sales of smaller and midsize cars were increasing.

This is to be expected with fuel prices being what they've been over the past year or so. But this chart from the Bureau of Labor Statistics would indicate that the economy seems to be clicking along pretty well:

Rob,
One more friendly thought:
Your chart marks a recessionary period between about March 01 to NOV 01. (Its that cross hatched area). Please note that the unemployment at the beginning of that recession was even lower than it is now. It rose dramatically in the chart during that eight month period, and it rose even more after the recession was over. My point is this: an unemployment chart does not forecast the coming of a recession; neither does a continued rising unemployment rate tell us that we are still in a recession (according to your chart).

My thoughts are that a layoff and a cutback in production for the 4th quarter (re: Christmas time) portends a slowing economy which effects will not be fully felt for six months. And the stock market looks ahead six to nine months and bases prices on what will be the case then.

The Elliott Wave quote backs up the Dow Theory outlook that the market is very close to a double top at this time, and looking quite toppy. I expect a pullback to begin this week or next. (I am not an Elliott Wavist; I can't count!).

[Rob]

I am saying that since auto production is 28% of US economy, a slowdown there hurts the economy in general.

Any response to the Elliott Wave article? I'm curious to know your thoughts.

They're cutting production due to excessive buildup of inventories. But I reiterate: some of the other portions of that story indicate advances with certain other subgroups of that sector.

As far as Harry Dent goes, I don't know who he is, but I don't see a retest of 10,000 in the DJIA as probable; I still think 12,000 is more likely before 10,000. Certainly, anything's possible, however.

[billyjoe]

New-born,
Let's say you're checking out a chart with a perfect classic bullish pattern such as cup w/handle. The volume drops 50%. At what point do you jump in ? Only when Volume surges ? You don't want to be late. Is there a delay between volume increase and price increase ? In a breakout can the price jump before volume ? How long do you wait for a move before giving up and moving to the next stock ? Thanks

---------------billyjoe

[skiracer]

New-born,
Let's say you're checking out a chart with a perfect classic bullish pattern such as cup w/handle. The volume drops 50%. At what point do you jump in ? Only when Volume surges ? You don't want to be late. Is there a delay between volume increase and price increase ? In a breakout can the price jump before volume ? How long do you wait for a move before giving up and moving to the next stock ? Thanks

---------------billyjoe

If it's in it's handle phase the volume should be diminishing as the handle slopes downward. I don't think there is a % placed on the amount of volume it has to drop but only that it should be diminishing or "drying up". This becomes the tricky point where the bottom of the handle or end of the handle will begin to turn up again as volume begins to come into the stock and price begins to move upward as the increase in volume consumes whatever supply there is left and price increases as a result. You really have to have the stock on your short watchlist and be looking for this to happen. It's the astute trader that realizes where the stock is at and what is coming or possibly coming that watches diligently for the event to take place. It's like you have to be there when the breakout takes place to make an entry at the best time. Anything afterwards and you lose some portion of the breakout because of your timing. To be ready and watching for it happen realtime is a beautiful thing when you catch it as the volume and price begin to spike up at the moment it starts to breakout. I don't think there is any number or % that you can affix to the slope downward in the handle or how far it will go. Usually when you are waiting and waiting for an event to happen and then you give up and forget about it the event takes place and you're left wondering what happened. You really just have to keep it on your watchlist and keep watching for it. If volume tends to increase and the stock or handle keeps tracking downward is an indication that maybe it isn't going to happen. These type of formations will test your intestinal fortitude every time. You just have to stay with it.

[New-born baby]

New-born,
Let's say you're checking out a chart with a perfect classic bullish pattern such as cup w/handle. The volume drops 50%. At what point do you jump in ? Only when Volume surges ? You don't want to be late. Is there a delay between volume increase and price increase ? In a breakout can the price jump before volume ? How long do you wait for a move before giving up and moving to the next stock ? Thanks

---------------billyjoe

Most cup with handles on less than 1.5X volume fail. IF the stock breaks out on one half the normal volume, as per your illustration, I'd leave that stock alone, as some big bully is going to sell into that rally with a vengence. Low volume rallys are bearish. When I see the price rising and the volume dropping, I am looking to exit the stock, because a distribution day is coming soon to a stock near you.

The common advice is to wait for a breakout ABOVE the lip of the cup. As Ski rightly pointed out, the handle most often sags below the lip of the cup on diminishing volume. When the price rises again past the lip of the cup, on advancing volume, you buy the stock. You can measure volume this way: say the daily average volume for the stock is 650,000 shares. You know that there are 6.5 hrs of trading per day, so that makes an average hourly volume of 100,000 shares. If you notice the stock trading just past the lip of the cup, check the time and multiply the volume by the hour, you can see if it is breaking out on accelerating volume.

Now, "how long do I wait?" I watch the stock until the chart tells me to buy it or else to sell or leave it alone. A cup with a nice handle can be a very explosive and profitable play. It bears watching, and I have never seen one carry on without exploding higher or pulling back (and thereby making a double top) within about a month.

[New-born baby]

They're cutting production due to excessive buildup of inventories. But I reiterate: some of the other portions of that story indicate advances with certain other subgroups of that sector.

As far as Harry Dent goes, I don't know who he is, but I don't see a retest of 10,000 in the DJIA as probable; I still think 12,000 is more likely before 10,000. Certainly, anything's possible, however.

I myself am looking for a pullback as the Dow and S&P are approaching double tops. AMEX is within a few points of its all time high. More troubling is the fact that they are approaching these levels on diminishing volume, in Sept-Oct, in a time of war [the Dow has never made a new high during wartime], with an inverted yield curve! So yup, I am bearish over here.

Perhaps I am too pessimistic. We shall see . . . .

[DSteckler]

I myself am looking for a pullback as the Dow and S&P are approaching double tops. AMEX is within a few points of its all time high. More troubling is the fact that they are approaching these levels on diminishing volume, in Sept-Oct, in a time of war

Lower volume in the last half of August and early September is the norm, not the exception.

[skiracer]

Lower volume in the last half of August and early September is the norm, not the exception.

I have to agree with Dave on his point that the influx of people coming back off vacations and the end of the summer get away period will boost the markets. This small window of time is a period of naturally lower volume. Looking at the charts for both the indexes doesn't show me that I should be looking for a big drop or should be bearish at this time.

[New-born baby]

Lower volume in the last half of August and early September is the norm, not the exception.

Dave,
Okay, I accept your thesis statement about volume. Now how about the possible double tops? Does that have you concerned?

[DSteckler]

Double tops are a bearish formation. But you can't say that the Dow and SPX are approaching double tops because they haven't even reached the May high, let alone reached it and rolled down to test the neckline low between the double-top highs (which is what the DT pattern looks like).

What they are doing is reaching towards the target objective of a double bottom pattern. The Dow had bottoms on 6/13 and 7/18, with a neckline on 6/30 - 7/6. Target objective is the distance between the bottoms (around 10,690) and the neckline (around 11,240), or 550 points, added to the neckline for a target of 11,790.

The SPX had double bottoms on 6/14 and 7/18, of 1219 and 1225. The neckline was on 7/3 - 7/6, around 1280. That's a difference of around 53 points. Add that to the neckline for a target objective of 1333.

[New-born baby]

My View

If you have 45 seconds, you could read this post and see my view of the markets.

http://www.stocktiming.com/Tuesday-DailyMarketUpdate-.htm