The Night Owl is now read on four continents.
The Hoot
Actionable ideas for the busy trader delivered daily right up front
- Tuesday lower, low confidence. Bull-bear ratio is 3:3.
- ES pivot 1242.08. Holding above is bullish..
- Rest of week bias uncertain, sideways to lower likely.
- Monthly outlook: bias up on technicals.
- ES Fantasy Trader went short at 1243.00.
I love it when a plan comes together and last night's worked out quite well indeed today with the Dow producing a solid 105 point gain. Can we keep this rally running? Let's tilt the Ouija board and find out what Tuesday might hold in store.
The technicals
The Dow: Today's close at 11,914 took us just about clear up to both the upper Bollinger band (11,966) and the 200 day MA (11,967). Theoretically at least, both of these can be resistance. The Dow has crossed up over its 200 day MA six times since the start of 2010. Only in one of those cases was it able to accomplish that in one day. The others took anywhere from 2 to 8 days to break out.
Also, all of the Dow's indicators are now at quite overbought levels. RSI and momentum have already peaked, but stochastic is actually executing a bullish crossover from a high level, quite an unusual pattern. Still with just 50 points of available "free" upside remaining, I'd say the Dow is about due to top out in the next day or two, so I'm giving it +1 bears.
The VIX: Dropped another 6.5% today, as I expected. However, even today's close at 29.25 neither brings us to support (at 28) nor puts the indicators in oversold territory. This VIX may now be closer to a bottom than a top, but I don't see a reversal sign yet here so it has to be +1 bulls.
VIX futures: This chart is looking pretty much like the VIX itself. They are now close to, but not quite at support.So while not exactly bearish, they definitely don't look encouraging. Therefore, no points here tonight.
Market index futures: Unlike the past few nights, tonight all three are in the red. ES is now down 0.3% at 1:30 AM EDT. Although ES is close to, but not quite at its own upper Bollinger band and 200 day MA, all of its indicators are now overbought, and four of them (RSI, momentum, money flow and OBV) have peaked and turned down, a bad sign. I'm not feeling the love from this chart so it's +1 bears.
ES daily pivot: Now 1242.08. With ES now at 1243.75, we're just barely holding above the pivot. That makes it tough. Remaining above or bouncing off is bullish, falling through is bearish. It's really still too early to call, so no points here. Just keep a very close eye on this number before the open on Tuesday.
Dollar index: After piercing its 200 day MA yesterday, the dollar did indeed continue lower today but even this drop did not bring it into oversold territory. We're not even near the next support level, so it stands a good chance to continue lower Tuesday and that's +1 bulls.
Oil: Oil gushed today right up to its upper Bollinger band and resistance from last month. It's indicators are now all overbought but without an actual reversal sign, it's too early to call a top. It might come down tomorrow, but I don't see it just yet. Accordingly, no points for this chart.
Copper: The abandoned baby of which I spoke last night delivered today in a big way with copper gapping up above its previous October resistance and nearly to its upper Bollinger band. Even at that, all the indicators are still just coming off oversold. With no further resistance in sight until 388, it's +1 bulls here.
Morningstar Market Fair Value Index: Morningstar did not update this today, so no points.
History: According to The Stock Traders Almanac,the first three days of the last week of October all underperform historically, so +1 bears.
Sentiment: Once again it's Monday, so the new Ticker Sense Blogger Sentiment Poll came out today. Last week the bullish number dropped just a bit to 55% and the bears rose from 11% to 23%. This week the bulls dropped to 36% while the bears rose again to 39% putting them back into the majority but just barely (nyuk nyuk). With such a close score there's nothing to base an opinion on, either with the crowd or contrarain, so no points.
For the record, I voted bullish again for the third week in a row, still on the basis of my reading of the monthly Dow chart and the upcoming bullish fourth quarter seasonality.
And the winner is...
No one. It's a tie with a bull-bear ratio of 3:3. My overall impression tonight is more pessimistic than that though, so the Night Owl is moving way out on the limb and calling Tuesday lower.
ES Fantasy Trader
Today we took a profit of 9.5 points. Portfolio stats: the account is now $143,125 after 27 trades (19 wins, 8 losses) since inception on 8/18 with $100K.
BOT 10 ES false DEC11 Futures 1238.75 USD GLOBEX OCT 24 01:19:52
SLD 10 ES false DEC11 Futures 1248.25 USD GLOBEX OCT 24 12:16:25
Tonight we go short at 1243.00.
Posts
Michele-
ReplyDeleteIf one examines a standard 'McClellan Oscillator' daily tracking chart, such as the one maintained on the McClellan site, it can quickly be observed that bad things tend to happen to good bulls and fairly soon, when it has hit these extreme high levels in the past months.
Observing that, in a seasonally weak part of a month, gives me a sense that extreme caution is warranted. So even though your final numeric, Michele, came out to 3:3, nominally a ‘tie’, the level of overbought on that indicator, and others of similar nature, implies that any clearing of the overbought condition could be sharp, even if only temporary. And with the eclectic J-Trader Model also signalling a strong reversal warning, based on its own parameter set, I can well understand your leaning that way, in setting your market posture.
But I also wish to call your attention to the many and various “breadth thrust” signals being generated by this upmove in the US equity market. When you report “quite an unusual pattern, stochastics executing a bullish crossover from a high level”, that’s yet another kind of big move alert signal. Similarly with other measures of extreme buying pressure, where the indicators have recently entered overbought zones, then came out of them briefly, and now have moved right back in.
There are many specific definitions of a “breadth thrust” signal, but the concept is universal to all of them. Strong persistent widespread buying, without much letup.
I know your Blogger Sentiment vote is bullish and has been so for a while. I offer these breadth observations in support of that position. It is even more bullish, imo, to see that Sentiment poll turn decisively more bearish... even as the Nasdaq Composite is closing above its 200 day EMA and now SMA.
I heard an interview on the radio yesterday with a Portfolio Manager at a large Mutual Fund, and he said he was starting to see what he called “plain vanilla” buying going on in the market, and by this he meant investment timeframe accumulation by funds, as opposed to daytrading by hedgies.
And just yesterday, I may have observed an anecdotal moment of same, right near the close. I noticed that the major Indices were all weakening toward the close, say in the last 15 minutes, and moving in their usual risk ON risk OFF lockstep correlations... but Advance/Decline indicators did not weaken at all, and built relentlessly into the close... dragging the indices up with them, in the final few minutes. This is an indication that companies OUTSIDE the Index and ETF darlings were being accumulated--which is what Mutual Funds do...
Lastly, Michele, I'm wondering, do Owls really make “nyuk nyuk” sounds, as you did in your posting? I'm no avian expert, I defer to your familiarity with the ways of your chosen namesake, but “nyuk nyuk” is new to me. Or perhaps you were trying to spell New York...?
:) - Daniel
10:30am EST and as instructed we're watching the 1242 SPX pivot like a hawk. Price is currently dancing just above and below it...
ReplyDeleteExcellent observations, as usual, Daniel. You made the case better than I could have. This all in fact merits an extended discussion. Unfortunately, the Night Owl has a whole bunch of day errands to run this afternoon and will be away from her screens. But we'll return to this tonight.
ReplyDeleteI will simply point out that I hope you noticed that nine minutes after you wrote your second comment, at 10:39 AM ES (and it's the ES pivot, not SPX I'm watching) came withine *one tick* of the pivot and then promptly retreated.
A second, weaker attempt was made at 12:29 PM and similarly rejected. That reinforces my position that we're closing down today.
Finally, you are absolutely correct. Owls in the wild do not naturally go "nyuk nyuk". However, they will start doing so when exposed to too many episodes of "The Three Stooges". Nyuk nyuk nyuk is the sound Curly makes after coming up with an excruciating pun or malapropism.
For example: Curly is on the witness stand with his hat in his hands. The lawyer tells him "Kindly drop the vernacular!". Curly looks at his hat, looks at the lawyer and exclaims, "Vernaculah? This ain't no vernaculah - it's a doiby!" Nyuk nyuk.
1pm and as instructed we're watching the 1242 SPX pivot like a hawk. Price is currently dancing just above and below it...
ReplyDelete(don't you just love cut and paste?)
This is clearly a key pivot level, Michele...
Sorry, meant to ask, can you quantify please, how many episodes of the Three Stooges constitutes "too many"..? And doesnt current research show most of the damage is irreversible?
ReplyDeleteOh it's definitely irreversible alright. The State of California has shown that prolonged exposure to the Stooges can cause permanent damage to the funny bone. I'm not sure what a lethal dose would be, but it sure can't do a person any good. Woo woo woo! Hey Moe!
ReplyDeleteIf you are that true-blue a Three Stooges fan, Michele, does the term "Niagra Falls" perhaps produce any immediate Pavlovian reactions in you...?
ReplyDeleteThat was my favorite episode. But in truth I wasn't really a big fan; it was just something I caught every now and then in re-runs on syndicated TV. Also, may I suggest that if one is going to suddenly break into Three Stooges imitations, it might be advisable to let it be generally known that this is what one is doing. Otherwise, the behavior might not be obviously discernible from sheer run of the mill madness.
And congratulations again on yet another helpful nightly analysis. Especially the considerations last night on the VIX, which came into today's session positioned in that awkward location near the bottom of a Bollinger Band, but not all the way there; while also in a loose broad horizontal support zone. I particularly noted that you did not try to FORCE an interpretation out of it, and blended its ambiguity into an overall pattern interpretation.
Also, I've seen in the past that you (wisely) visit and draw on the work of Rob Hanna, over at the Quantifiable Edges blog, something I recommend to all of your readers. Today his posted study seemed a perfect bookend to your own excellent work, and gave me additional confidence, during the day, in passing for now on opportunities to add to seasonal long positions, and even placing a few minor hedge positions to the downside.
I felt I had a good grasp of the underlying dynamics going into the day, and that the excellent orientation provided from you and Rob kept the Market from "gettin' on my noives!", as Curly would say...
"does the term "Niagra Falls" perhaps produce any immediate Pavlovian reactions in you...?"
ReplyDeleteSlowly I turned..." :-)
I do have a wide range of interests and try to throw in the occasional obscure literary, movie or TV reference just to keep things interesting. I'm also fond of quoting Gilbert and Sullivan, and I'm full of many cheerful facts about the square of the hypotenuse.
But all that aside, I do follow Quantifiable Edges every day as listed in my sidebar. I 'll take this opportunity to second your recommendation. I like Rob's analysis very much. He's usually right on the money.
And thanks again for the kind words. I believe that my analysis has improved since I started examining each chunk (my nightly "usual suspects") individually before deciding on a likely course for the following day.
I find one of the most difficult things is to approach every chart with no preconceived notions. All too often, you can find what you're looking for. I try to just look for what I find.