Actionable ideas for the busy trader delivered daily right up front
- Friday higher, low confidence. Bull-bear ratio is 6:4.
- ES pivot 1206.25. Remaining above is bullish.
- Next week bias higher..
- Monthly outlook: bias up on technicals.
- ES Fantasy Trader went long at 1214.00
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| Stock market ping pong |
The fact that we finished with a 37 point gain is more due to the fact that that's where we happened to be when the bell rang than any market conviction. This sort of ping pong match is enough to make your head spin. So will the bulls hit it into the net or unleash an overhand smash on Friday? Let's see if we can figure it out. But first a special announcement.
The Night Owl Visits the Doctor
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| Copper futures G30 A0, daily |
So taking the hint, I called up and luckily the good doctor had a cancellation. And while sitting in his waiting room, an interesting chart just happened to slip out of the pages of a two year old copy of People Magazine. I reproduce it here for your viewing pleasure.
We see here that copper futures have taken a tumble since the start of September culminating today in a gap-down red candle that has taken it clear down to its lower Bollinger band and coincidentally its early October lows. While its indicators are not yet oversold, they're closer to that than overbought.
Hmm. Say ah. On the weekly chart, the indicators are quite oversold, but though copper remains in a descending regression trend channel it has now moved clear to its right hand edge. News on copper is mixed, with some reports citing concerns in Europe and China for the recent decline and others suggesting that demand remains strong.
But if I throw in my two cents (made of pre-1982 copper, of course), I'd say copper is more likely to start climbing than going much lower from here. Maybe not tomorrow or even in a week, but this recent sell-off looks overdone to me. And since copper seems to be in positive correlation with the markets, that would be bullish for stocks. So I give an honorary +1 bulls tonight to ol' Dr. C. How'd I do?
The technicals
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| Dow daily |
And since these things resolve in a continuation of the direction of entry about 75% of the time, that's the odds that we're in for some higher prices soon. Of course since today was up, Ping Pong Theory would suggest that tomorrow will be down, but I think the triangle is going to assert itself here momentarily, and that's +1 bulls. Stay tuned.
The VIX: Rose a tad on an inverted hammer/almost gravestone doji candle today. And its indicators have decreased their rising slope suggesting a top is near. Caution would dictate waiting for confirmation, but the Night Owl is moving way to the end of the limb and saying this looks like the VIX goes lower on Friday, and that's +1 bulls.
VIX futures:This chart looks a lot like the VIX itself but I get the impression the futures are running out of gas. A reversal here would strengthen the case for the VIX running lower and that is another +1 bulls.
Market index futures: Today, we put in a tomahawk candle, (my own invention), part hammer, part doji. And in the overnight, all three futures are advancing by better than a third of a percent. I see a symmetrical triangle forming here too, which is bullish. The indicators are mixed though, with momentum and money flow rising, the stochastic and OBV suggesting lower, and RSI abstaining. So they pretty much cancel out. Therefore on price action alone, I award +1 bulls.
ES daily pivot: Now 1206.25. We broke over the Wednesday pivot this evening and since the Thursday pivot is lower, we're even further above it now with ES at 1213.75 at 2:05 AM EDT. Looks good to me, so +1 bulls.
Dollar index: After a too tough to call night, the dollar went lower today on a nondescript red candle that seems to have taken some of the wind out of the rising indicators' sails. Although its recent action is more wandering than trending, it could go lower still. I note that it closed today right on its daily pivot without bouncing off. This all has a vaguely bearish feel to it, so +1 bears.
Oil: Oil did indeed slide lower today as I expected last night but left us with a vague doji. The indicators are calling for lower still and since there's a bit of wiggle room before we hit support, I'll go with that. So +1 bears.
Morningstar Market Fair Value Index: Today the index declined from 0.86 to 0.85, so +1 bears.
History: According to The Stock Traders Almanac,on October witching day, the Dow has been down 5 straight and 6 of the last 7 years. History like that rates a +1 bears.
And the winner is...
The bulls in a squeaker, by a bull-bear ratio of 6:4. I think this ratio reflects the fact that Friday is expiration day, and anything can happen. And of course if Angela announces that she bought a lovely new hat, the market will soar. But if the FT reports that Nicky's new shoes gave him a bunion, then the market will tank. Such is life in 2011.
So after mulling it all over, it's a real tough one tonight. If I had to make a call, I think I'd go with the bulls, but I think a better call is that anything may happen Friday. Just keep watching the pivot. As long as we stay convincingly above, we should be good. That's all, she wrote.
ES Fantasy Trader
Today I finally threw in the towel on my short idea from a few days ago, covering at 1195.00 for a 1.5 point loss that felt like a victory considering that was close to the low of the day and that I'd been considerably more underwater two days ago.
Portfolio stats: the account now stands at $129,750 after 25 trades (17 wins, 8 losses) since inception on 8/18 with $100K.
BOT 10 ES false DEC11 Futures 1195.00 USD GLOBEX 12:25:00
SLD 10 ES false DEC11 Futures 1193.50 USD GLOBEX OCT 18 01:52:04
I may live to regret this, but tonight we go long at 1214.00.
Posts
Michele, regarding Dr. Copper, a paraphrase of Oscar Wilde usually says it best. "The only thing worse than being talked about is NOT being talked about."
ReplyDeleteCopper prices must always be tracked, at least periodically. As the number one correlator with "stuff bigger than gadgets being built", it's right up there with corregated boxboard production as something to never take one's eye off, or ignore in the overall weighing and considering process.
The extended, multi-year close R-squared correlation of $Copper with SPX vouchesafes the truth of that. It is more correlated than bonds. Concluding wrong on its short term price movements is a far lesser sin than failing to pay attention to those movements. Dr. Copper is a jealous metal and needs to be talked about, imo.
:) -D.
You are absolutely right, as usual. Starting next week, I am promoting copper to the list of Usual Suspects for the nightly run-down. Thanks for pointing it out.
ReplyDeleteMichele-
ReplyDeleteI also think that your instinct to "pull back one timeframe", going into this past Monday's analysis and forcast, and focus on weekly charts, was an extremely accurate one. This may indeed have been a watershed week.
In stating then why you thought going to a weekly chartview might be instructive, you said, "..I'm getting the impression that something has changed recently in the market, and it's time to try something different..."
By the end of the week you were coming up with solid concrete evidence to support that sense; however, as of Sunday nite, it was just a vague impulse. I'm glad you went with it.
As it turns out, today's breakout is showing up on weekly charts, and catching eyes from Bespoke to Poughkeepsie. Now that an SPX range breakout is clear, more long-term money will quickly come flowing in.. although European bank matters are so serious they are a true wildcard which can trump any pattern in the short term, imo.
I listen to many interviews on Bloomberg radio, especially those with pros who understand relative yield spread instruments better than I do. The most sober of the interviewees have convinced me that interlocking leveraged banks are pretty explosive, given how quickly perception can feedback-loop.
Thanks always for sharing your thoughts, and for prepping us on the day ahead.