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- Friday higher, low confidence.
- ES pivot 1233.58. Remaining above is bullish.
- Next week bias lower on technicals.
- Monthly outlook: bias uncertain on technicals and Europe.
- ES Fantasy Trader remains long.
Last night the only thing I wrote that proved to be correct was my closing comment in the ESFT section, "I think today's decline was really overdone and am expecting a bounce eventually.". Well we did in fact get a bounce today but it had more to do with the S&P's rating on France than yesterday's big decline. Once again the news trumps the technicals.
Since I seem to be nothing but wrong lately, I'm going to try something a bit different tonight. I'm only going to review what I think are my best indicators and I'm not going to compute the bull-bear ratio at all. Given the ongoing volatility and irrational nonsense permeating the entire market lately, there's no point in over-analyzing things just to end up being proven wrong again.
The technicals
The Dow: The Dow shot up right out of the gate this morning and then spent the rest of the day oscillating about its pivot. With a close of 11,894, the 200 day MA at 11,975 and the 12K psychological level now become resistance. That's also about the 50% retracement of yesterday's drop. Assuming that took a lot of sellers out of the fray, I don't think it unreasonable to expect another run at 12K tomorrow.
The VIX: Yesterday I observed that "the VIX rarely spends more than one day at the upper BB without retreating". I should have had more confidence in my own observations because the VIX did indeed drop 9.26% today. Tonight I'll add that once the VIX has hit its upper BB and then begun a decline, it most often continues to decline at least one more day. The VIX has no support until 31.39 from today's close at 32.81 so I'm guessing it still has ate least a bit more lower to go Friday.
VIX futures: The futures also moved lower today putting in a gravestone doji candle but in the wrong place to be a reversal pattern. I do however think that this sort of indecision favors further downside from here which would be good for the markets.
Market index futures: Tonight all three are solidly in the green at 1:40 AM EST. ES is up 0.42%. This sort of follow-through on today's action looks encouraging to me.
And the winner is...
Looks like the bulls to me. I'm going to say I see more positive than negative tonight just on the overall gestalt of things, so I'll call Friday higher with the usual caveats about new/rumors out of Europe. I'll add that J-Trader, who went long yesterday and has been a lot more right than me this week, remains long tonight.
ES Fantasy Trader
We continue to hold the long position from two nights ago. My decision to hold last night was a good one and we recouped about half of the loss on this trade. With any luck, and by gosh that's exactly what's driving this market now, we should be able to recoup some more on Friday.
Portfolio stats: the account remains $173,500 after 35 trades (26 wins, 9 losses) since inception on 8/18 with $100K.
Posts
Michele your humor is sour as a pickle, but your analysis is invaluable. I personally have learned a ton on how to use Candlestick Analysis from watching you apply it to the sectors and indicators you track. I used to see C.A. mainly as confusing arcana (possibly useful, but with--at the least--a steep learning curve)... but watching your applications I realize it isn't that complex. So it has become another golf club I toss in my bag.
ReplyDeleteI offer these thoughts into your weekend analysis. None of it is meant to be prognosticatory, only descriptive.
On Wednesday the CBOE Market Volatility Index, the proxy "fear barometer", soared to its loftiest close in more than a month. That is cautionary. Words like “soared” and “loftiest” are what I mean by cautionary. Those words usually describe either an impulsive initial thrust or a blowoff exhaustion culmination. Which would be the case here..?
However, sometimes they don't imply either, and do describe only an event-risk Reaction, in conjunction with an overbought-condition Reversion to more normal short-term levels. In which case Wednesday was a classic Wednesday before OpEx buy opportunity.
I greatly esteem the work of Springheel Jack, and he is adamant in saying no wise bird would ignore a possible very large Inverse H&S pattern in the VIX. It is not yet invalidated, and the incipient pattern IS there, currently. And two of the best deep-ecologist Economists, Lakshman Achuthan of ECRI, and Dr. John of Hussman Econometrics, continue to grumble that the most devastating effect on valuation of equities comes NOT when the risk of recession is being priced in, but when it is being priced OUT--as now.
However, that is assuming a recession IS inevitable; and we all know how economists like to make assumptions. Even the best ones.
Still, the two of them respect each other and know of each other but use quite different methodologies. Taken together I feel they need to be taken seriously. For them to be correct in their analysis would in fact result in a pattern such as SHJ is describing as being still possible.
Sentiment indicators are trickling toward more bullish than bearish; they are certainly no longer resoundingly bearish and the tailwind they recently were.
Using the SPY ETF as a reference, on October 27 a classic Upper Bollinger Band tag and local HI was established. A classic rapid retrace, closing right about the then rapidly-rising 20day MA, followed on November 1. Dr. Bollinger would be proud as a Mama Cat of so classic a set of Bollinger Band examples. This defined a range which has persisted through Friday’s close on 11/11.
Within that range, brave prognosticators such as yourself have tried to discern a pattern from day to day or in short swing timeframes, in a Market where the day-to-day changes could have been sent to StockCharts by a random-number generator.
If anything, the one really unique pattern, in that entire stretch of days, was a series of 5 consecutive UP hammersticks, normally quite a bullish pattern. And it blew up in the Italian Opera of Wednesday.
No wonder your instinct was to retreat to weekly charts, Michele, back right about the point where this sidewaysness and triangularity began.
When will it end, and decisive movement one way or the other ensue? Certainly when the ADX-14 on the major indexes turns up from the lower TORPID and non-trendy levels where it currently resides. Even though a lagging indicator, that will clearly signal the Market has a serious commitment to breaking out and rapidly trending toward either of the VIX resolutions about which Mr. Jack has been writing.
And all of this said, triangularity of any kind usually resolves in the prior major direction, and given the kaboom of October that still has to be seen as UP. And that UP must be especially respected as we come into year-end Bonus angst time, where fiduciaries start to worry a bit more about their annual bonuses than client longterm well-being, albeit temporarily...
Daniel, your comments are always most appreciated here and your insight is laser-keen. Lots of good ideas here.
ReplyDeleteI intend to go over this very carefully before my usual late post tonight And sorry you don't appreciate my humor :-)
Who said I don't 'appreciate' your humor? What are you talking? I love a good sour pickle. (nyuk nyuk)
ReplyDeleteBottom line, this is a dangerous time of the year to be bearish. Every year. But we are due soon for some more psychodrama out of Washington, with a deadline and a Budget SuperCommittee. There really need to be rein-ins on American spending, same as other sovereigns, and markets will be pricing in the 'macho' (or lack of it) on the part of the SuperCommittee. This could make for volatile news splashes-- at what should normally be a calm time, seasonally speaking.
Low ADX, high VIX, politicians posturing, a formula for high-noise low-signal market waters, imo.