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- Wednesday higher, low confidence.
- ES pivot 1231.50. Watch for break above.
- Rest of week bias higher, on technicals.
- Monthly outlook: bias up, on technicals.
- ES Fantasy Trader went long at 1228.50.
I thought we'd go higher today unless the Fed said something bad. Well we indeed were higher - right until the Fed spoke. And even though they essentially said nothing, I guess the market didn't like it so down we went with another bump for a 66 point loss in the Dow. That's why I marked this call as "low confidence".
The technicals
The Dow: Like the German army retreating from the Trasimene Line to the Gothic Line, today the Dow gave up the 12K psychological support line but held its ground at the 200 day MA. Today's close of 11,955 is just over that at 11,943. Next stop on the down elevator is 11,819, the 40 day MA. Then 11,655 and finally 11,230, the November lows. Are we headed there tomorrow? I don't really think so.
The VIX: Punched through its 200 day MA to close just above its 24.5 support line with a doji. This is an important chart. If the VIX bounces off this support line Wednesday, it will be quite bearish. On the other hand, there is no further support below here until 21.5. A break under would be quite positive on a swing trend basis. There's no sign yet of a reversal in the indicators and the doji is only a potential reversal sign, so the door is still open for a lower VIX Wednesday and that would be bullish.
VIX futures: The futures are looking even less of the way towards oversold than the VIX itself. In fact, their stochastic just executed a bearish crossover. This indicator is highly reliable. Lower futures -> lower VIX -> higher stocks.
Market index futures: Tonight, all three futures are up, with ES sporting a 0.27% rise at 1:35 AM EST. But the action is a bit concerning. After drifting up all evening, ES took a tumble at 1:15 for no immediately obvious reason.
ES daily pivot: Dropped to 1231.50 tonight. So far, we remain under that number and the fact that ES took at run at it at 1:15 AM and failed is bearish.
Copper: Copper extended yesterday's losses today putting in an even taller red candle extending exactly halfway into the big upside gap created at the end of November. Nothing to suggest a reversal on this chart.
Morningstar Market Fair Value Index: Yesterday the index took a two tick drop from 0.88 to 0.86. That's bearish.
History: According to The Stock Traders Almanac,both Wednesday and Thursday are historically bearish.
And the winner is...
Wow - once again we've got another tough call. ES is in the middle of its BB's. It's close to but not quite oversold yet. The Dow broke one support level but a second one held. There's next to nothing to go on here. All things considered, I'm going to go with the VIX futures and the fact that ES is not continuing lower and therefore call Wednesday higher, but with very little enthusiasm.
And as usual lately, any bit of bad news, rumors, whatever from Europe will cancel this call. To really seal the deal, we need to see ES break over 1231.50.. Watch that number early Wednesday morning. Happy trading!
ES Fantasy Trader
Today we took a small 4.75 point profit at lunch time ahead of the Fed and I was glad I did. Sometimes discretion really is the better part of valor.. Portfolio stats: the account remains at $149,125 after 42 trades (29 wins, 13 losses) since inception on 8/18 with $100K. Reminder: the portfolio will reset to $100K cash on January 1st, to make year-over-year comparisons easier Tonight we go long at 1228.50 at 1:39 AM.
SLD 10 ES false DEC11 Futures 1241.00 USD GLOBEX 12:30:00
BOT 10 ES false DEC11 Futures 1236.25 USD GLOBEX DEC 12 19:07:31
Posts
Thanks for the insights, Michele.
ReplyDeleteCould you tell me how you calculate the ES Fantasy Trader (the profit on a $100,000 portfolio) since you're investing in e-mini futures?
Every trade is 10 contracts. So if I make for example 8 points, my profit is 8 * 10 * 50 = $4000. I'm not including commissions, because they're a minor proportion of each trade... and also I'm just too lazy to do that math every time.
ReplyDeleteIB charges $2 per contract, so that's $40 per round trip. I know how many trades I've made, so I'll calculate the net one time, at the end of the year. At the moment, I've spent $1680 in commissions.
Doubtless I'm being dense, but if you're trading 10 contracts, that's essentially controlling just over $600,000. What I'm not seeing is how the profit/loss on $100,000 is arrived at.
ReplyDeleteI'm sorry, I guess I'm just not understanding your question. Every point in ES is worth $50 in a trade. If I buy one contract at 1210 and then sell it at 1211, I've made one point. That's a profit of $50 (less commissions).
ReplyDeleteThe fact that I'm controlling $60,000 doesn't really enter into that calculation. The number "$100,000" is simply an arbitrary value I chose as my initial starting point at the time I made my first trade.
Or am I missing something here?
Actually, as part of your experiment, I was trying to calculate your annual return. To do that, we need an investment and a profit/loss.
ReplyDeleteIt seems to me that one way to do that would be to use how much you're controlling as the "investment." Is there another way?
It's easy if you're investing X amount in a stock or ETF. With futures, it's much more difficult for me to calculate an annual (or monthly) rate of return. Do you have any ideas?
Well I'm a computer scientist, not an accountant. For better or worse, I calculate return very simply: (ending balance - starting balance) / starting balance * 100. So if I start the year with $100,000 and end with $147,000, my return is (147000 - 100000) / 100000 * 100 = 47%. I completely ignore any leverage that may have been needed to produce that return.
ReplyDeleteFor the ESFT, I'll compute an annualized rate of return, but since I didn't start on January 1st I don't really have an "annual" return. Next year I will.