Weekly Review

The holiday-shortened week was pretty awful by any account. It did have one benefit though: the drop of over two percent for the week took some of the froth out of the market and helped clear the air like a thunderstorm on a steamy summer afternoon. All the daily indicators, which were looking overbought at the start of the week, are now looking more oversold than any time since last August.

But that doesn't really show up on this weekly chart of the Dow. What's of note here is that the Dow remains in a primary uptrend that goes back to June 28, 2010. That's quite a run. And even with this week's big drop, we remain in the upper half of the rising regression trend channel. But if you look at the last two times we had a big drop in this channel, the following two weeks drifted lower.

But Monday is the last trading day of the month and Tuesday is the first day of the following month. Both of these are historically strong, and as I said, the daily chart is looking oversold now. So my strategic outlook for next week would be higher prices in the early part of the week, possibly followed by declines later on. A rise on Monday is also supported by the daily candles: a hammer on Thursday and a bullish engulfing pattern Friday. That's a strong reversal signal.

Of course, this all assumes there's no new news out of Libya. Barring any drastic changes over there, it appears that the Short Attention Span Theatre that is the stock market has moved on.

Finally, with three days up, three days down, one day up and the expectation of another day up on Monday, there is no swing trend so I've removed the red arrow and put up the "no clue" symbol. As a reader mentioned yesterday, the day traders love this sort of environment. It's less than ideal for swing trading.

A Note on the VIX

I've been focusing on the VIX recently. It looks like my theory about the correlation between the VIX and the market held nicely this week. The VIX took a big jump on Tuesday and Wednesday. Then it started to fall on Thursday. The S&P continued to fall Thursday but rose exactly one day after the VIX started falling. The daily VIX still has room to fall, supporting my expectation of higher stock prices on Monday.

A Note on Oil

The big noise this week was all about oil, due of course to the Libya situation. Does anyone remember the summer of 2008 when oil went exponential peaking that summer around $147 a barrel? Shortly before then, someone (I think is was GS) came out with a prediction that oil would hit $200 by fall. And we all know how that ended. Well, this past week I heard no fewer than three people predicting that oil is going to $200. That does it - the run up in oil is now officially over.

Performance

Although the markets were terrible this week, I still managed to end the week almost break even, finishing with just a 0.17% decline on the week. I managed to post some good results on Thursday and Friday, nearly offsetting my losses earlier in the week. I did take one lesson away from this week and that is to listen to my own forecasts. By Monday night, anyone could have seen Tuesday's drop coming a mile away. I really try not to play the "woulda coulda shoulda" game, but I shoulda taken out a few short contracts in ES at that point.

If I'd been wrong and the market had gone higher, I would simply have been left no worse off than before. And if I was right and the market tanked Tuesday, I could have insulated myself from some demoralizing losses. That's a no-lose situation.

Year to date, I am now up 8.11%; the Dow is up 4.77%. My maximum winning streak is four days and maximum losing streak is two days. Sharpe ratio is 0.33 and win/lose ratio by day is 1.92.

As expected, my spec play in WIN was up on Friday. It goes ex-dividend lat next month but I may not hold it that long. For now, it's moving the right direction and still has room to run.