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- Wednesday uncertain, news-driven. Bull-bear ratio is 5:3
- ES pivot 1233.75. Breaking above would be bullish.
- Rest of week bias uncertain, rebound possible by Friday.
- Monthly outlook: bias lower on technicals.
- ES Fantasy Trader standing aside
As I expected last night, the Dow was flummoxed Tuesday by the double barrier of its upper Bollinger band and the 200 day MA which left it nowhere to go but down.
The technicals
The Dow: Today's close at 11,706 still leaves us a bit above first support at 11,675. The 207 point drop gave us a medium reliability bearish two crows pattern. With indicators that have now peaked at overbought levels and turned downward, I'm afraid I see no sign of higher here so that's +1 bears.
The VIX: Today the all-important VIX rose a solid 10% to close back above 30 at 32.22 forming a pattern you don't see very often, the downside gap three methods. That is a bearish continuation pattern of medium reliability. This suggests that despite today's advance, the VIX still has lower to go. Of the three active VIX indicators, RSI and momentum are rising (bullish) but the stochastic, which is very reliably is still descending (bearish). The preponderance of evidence on this chart suggests a lower VIX tomorrow so that's +1 bulls.
VIX futures: This chart looks very much like the VIX itself with the added advantage of having OBV available. And that is now at levels from which we've gone lower the next day. Lower futures -> lower VIX -> higher stocks, so +1 bulls.
Market index futures: All three are higher this evening by better than a third of a percent with ES up 0.41% at 1:30 AM EDT. Today's big drop in ES formed a difficult candle. Not quite dark cloud cover, not quite bearish engulfing, I'm not quite sure what to make of it. I do know we saw the same pattern on Oct. 14-17 and the next day was up. The indicators are kind of all over the place. OBV is now in a position looking up for tomorrow but the stochastic is tied up like a ball of spaghetti - you don't see that very often.
Trendwise, Monday's close was right at some good near-term support, and the overnight is respecting that for now anyway. It isn't completely clear, but I'm going to give this +1 bulls anyway.
ES daily pivot: Is now 1233.75. We're just three points below this level now but have yet to mount an attack on it. We'll need to see ES break above this sometime before noon Wednesday to get a higher close. But since we've been drifting higher since 7 PM, we're at least moving in the right direction and although it's still a bit early I'm going to give this one +1 bulls too. As usual on uncertain days, watch the pivot for clues.
Dollar index: The buck made an inverted hammer that was unable to move below yesterday's close. That said, there isn't any particular support here, we're not at the lower Bollinger band yet, and the indicators, while nearing oversold levels aren't there yet. With this sort of mix, I'm reluctant to call a direction for Wednesday (though I think we'll be going higher by Friday), so no points.
Oil: Oil put in an evening star today right to its upper Bollinger band on heavy volume. Its oversold indicators suggest lower tomorrow and that would confirm the bearish candlestick pattern. It might be a day too soon, but I'm still giving a vote for lower oil Wednesday here. With oil still in sync with the markets, that's +1 bears.
Copper: Copper fell today but only enough to make day two of a three inside down pattern. But that definitely requires confirmation on Wednesday. Meantime, copper is in no-man's land, at neither support nor resistance, not close to any Bollinger band, and not in any regression trend channel. I'm getting no guidance from this tonight so no points.
Morningstar Market Fair Value Index: Today the index jumped from 0.87 to 0.91. Not only is this bullish in and of itself, but it marks the first time since 8/31 that we've crossed back up over 0.90. And to the extent that TA can be applied to this graph, I'm seeing an inverse head and shoulders here. So with all these positive signs, it's +1 bulls.
History: According to The Stock Traders Almanac,the first three days of the last week of October all underperform historically, so +1 bears. I'd really like to make it 1/2 though, because Wednesday is the least bad of these three days.
And the winner is...
The bulls by a 5:3 bull-bear ratio. But that's not exactly a ringing endorsement. However, J-Trader has covered his shorts but interestingly isn't going long either, suggesting a similar view to what I'm seeing. Meanwhile Quantifiable Edges is bearish. And one more key opinion from alert reader Daniel, who today demonstrated a keen insight when he observed:
"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.So overall tonight I find myself in a quandary. The technicals seem to be suggesting at least the possibility of a reversal to the upside on Wednesday but they're not very convincing. I think what's really going on is anticipation of the upcoming EU summit meeting. I believe that, once again, Wednesday's market action will hinge entirely on what comes out of Europe, so all the technicals are for nought.
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."
This one really could go either way. The Night Owl's usual perch is simply not long enough to go that far out on a limb, so we're just going to have to wait and see what happens Wednesday. Tonight, I'm simply standing aside. As Peter Sellers said in Being There, "I like to watch".
ES Fantasy Trader
Today we took a profit of 8.75 points. Portfolio stats: the account is now $147,500 after 28 trades (20 wins, 8 losses) since inception on 8/18 with $100K.
BOT 10 ES false DEC11 Futures 1234.25 USD GLOBEX 11:31:57
Tonight we're standing aside - no trade.
Posts
“Slowly I turn... Step by step...” And with arms outstretched, like a zombie, he lurches forward.
ReplyDeleteThe triggering term was saying “Niagara Falls.” I don't know when that episode was written, whether it was a play on and parody of the film ‘The Manchurian Candidate’, or whether the film came later. (I'm hesitant to suggest that a movie often mentioned on top 100 lists stole its key idea from the Three Stooges.) My suspicion is they borrowed that literary conceit from the movie; their writing was truly eclectic, and they drew on and stole from pretty much anywhere and everywhere.
When you wrote recently, “..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,” it brought to mind some research I read a couple years ago, about how the brain most efficiently stores and retrieves information. Without going into medical technical detail inappropriate to an investment blog with readers on four continents, there literally is a term called “CHUNKING” in the literature of cognitive neuro-science.
Just reading some of the articles in Yahoo’s BrainBlog free App-module you would come across it, and some of your readers may have already.
Set theory and clustering are the comfort zones of the brain, it really isn't designed for linear processing. The term “chunking” is almost self-explanatory, conveying the sense of arranging data into small, meaning-packed chunks and clusters and sub-groups for quick neural linking...
And what’s really interesting is how the term began in psychology, then was picked up by computer programmers in Artificial Intelligence code writing, and now is in a second generation of cognitive application to our own brains. It’s come full circle. Skill at ‘chunking’ has a high correlation to winning in life.
I was also struck by your remark, “..I find one of the most difficult things is to approach every chart with no preconceived notions.”
Amen sing it sistah. The whole concept of contrarian investing is to reduce one’s expectancy-bias to flat zero, so objective reality stares us in the face. Not so easy even to say, and darned near impossible to do, but a prize worth pursuing. Congratulations if you can do it at all...
Interesting comments. For the record, The Manchurian Candidate came out in 1962, considerably later than the Stooges' "Niagara Falls" episode, titled "Gents Without Cents" in 1944. In fact, I find the Stooges' war years episodes to be some of their best and most interesting work.
ReplyDeleteThey did indeed borrow liberally from all manner of theatrical genres, although they beat Charlie Chaplin to the punch with their hilareous portrayal of Moe and Curly as Hitler and Mussolini in 1940. Chaplin's better known "Great Dictator" came out nine months later.
Um so anyway, oh yeah, the stock market. I first learned the concept of chunking in relation to Minsky's Frame Theory, which was part of my own introduction to AI back in the heady days of Lisp Machines and Cm*.
I always wanted to use those techniques to do some market analysis but jeez, who has the time. I mean it's fun, but I do have a bunch of other hobbies too. Anyway, thanks so much for reading and for all your great comments.