Friday, September 23, 2011

Friday higher if ES holds above pivot

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Friday higher, fair probability.  Bull-bear ratio is 8:1.
  • ES pivot 1129.75.  In play - watch for holding higher.
  • Next week bias up unless 200 MA broken.
  • Monthly outlook: bias down.
  • ES Fantasy Trader holding long..

I had a bad feeling last night when I wrote my post.  Not that the market was going to tank today, but more of a sort of tactical anomie, a feeling that the Lavalite World was coming home to roost.  Maybe the world really is falling apart.  My highly hedged call for Thursday was simply "bias lower", so that at least was right, but I sure wasn't expecting a 391 point bloodbath, down over 500 at one point.  I offered two theories; one was a big jump higher and the other was a small decline.  Holy moly.  Is there more to come?  Let's take a look.

The technicals

The Dow:  Two consecutive days of big losses have brought us well into oversold territory.  Of note today is that the August lows held.  We also hit the lower Bollinger band, which could signal the end of the decline. Also, every one of the last 5 times we've had big declines in the Dow since the VIX went ballistic have been followed by up days, so +1 bulls even though the candles don't dhow it.  If nothing else, a dead cat bounce is in order.

Daily VIX
The VIX: Pay close attention to the VIX today.  It put in a giant gap up evening star doji that carried it right to its upper Bollinfger band.  Today's close at 41.35 is also right at its recent resistance in the 40-43 area.  And its indicators are all approaching overbought levels.

The evening star is a powerful reversal indicator.  Also, whenever the VIX gaps up to its upper Bollinger band, it rarely spend more than one more day there before falling again.  Lower VIX, higher stocks, so +1 bulls. 

VIX futures:  This chart looks very very similar to the VIX itself.  With this type of pattern, the futures seem to have more room to go lower than higher.  Lower futures -> lower VIX, +1 bulls.

Market index futures: All three looking very healthy (for a change). After recovering a bit into the close, they've been continuing to drift higher all evening.  ES is now up a significant 0.73%.  +1 bulls.

2:15 AM Update: ES has now indeed fallen below the pivot.  If it doesn't return by Friday's open, then all bets are off.

ES daily pivot: Now 1129.75.  We're actually above that now (1:10 AM EDT) but not by much at 1133.25.  That puts the pivot in play.  Holding above this between now and the open is bullish, falling through it is bearish.  +1 bulls for now.

Dollar index:Put in a huge green candle today that took it right up to its upper Bollinger band.  With oversold indicators, technically it looks lower Friday which should be good fot stocks.  +1 bulls.

Oil:Took a huge dump today that took it right to its intermediate term support which held.  Now oversold indicators, especially a stochastic making a bullish crossover and I'm looking for a bounce in oil Friday.  With oil now in sync with the market, that's +1 bulls.

Morningstar Market Fair Value Index: Sank to 0.82 today.  Generally, a declining index is bearish, but we're now just 0.01 away from the lowest reading of the year, hit on 8/8 and 8/19.  On the next day after both of those, the market rallied, so +1 bulls here.

History:Tomorrow, the September post-witching week will mercifully finally be over.  It has certainly lived up to its reputation as dreadful.  And according to The Stock Traders Almanac, Friday is the worst day of this bad week, so +1 bears.

     And the winner is...

The bulls with a bull-bear ratio of 8:1.  You can't argue with that so I'm looking for a higher close Friday.  Of course whenever the VIX is at these insane levels, all it takes is one news story about someone we never heard of quitting their job at the ECB because they didn't like the quiche in the cafeteria to send the market down some more.  But technically at least, we're going up.

ES Fantasy Trader

Going long yesterday was probably my most ill-advised trade of the year.  But rather than give up on it, I'm going to let it ride one more day.  Often patience is a money-making strategy..

Thursday, September 22, 2011

Thursday too tough to call, bias lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday uncertain, bias lower..
  • ES pivot 1171.50.  Current price is far below that.
  • Weekly bias higher, rebound possible by Friday.
  • Monthly outlook: bias down on response toFed.
  • ES Fantasy Trader opened new long position at 1156.75..

Last night I called for the market to go lower today on technicals.  I was somewhat surprised by the viciousness of the downslide, with the Dow dropping 284 points on the Fed announcement.  So Uncle Ben, is tanking my 401-K your idea of saving the economy?  Thanks a lot - for nothing.  One big hoot of derision for today's announcement.

The technicals 

Today's ugly loss  left the Dow near its strong support at 11K.The VIX and VIX futures both shot higher today, suggesting lower stocks tomorrow  However, I'm feeling uneasy suggesting this.  The VIX is now back to the levels it started at back on August 8th when we had those four days of violent up and down swings.  Of course, when the VIX was in the upper 30's on September 9th (the last big Dow dive) the next day produced a small gain.

And the Dow is now back down to near the lower end of its recent trading range.  TNA, in fact is right at the bottom of its recent range.  That chart looks to me to be due for bounce either tomorrow or Friday.  For tomorrow, I see two possibilities:

1. we continue lower on continued jitters, but by a much smaller amount, or
2. we shoot back up again in a volatility rally...

Which will it be?  Who knows.  With the VIX this high, it's really tough to come up with a convincing forecast either way.  I continue to stand aside.  I know J-Trader is doing the same right now, so I'm in good company.  This market is too tough for me.

ES Fantasy Trader

So then  why is the ESFT going long tonight if I think the market is going down on Thursday?  Because I believe today's negative action was due entirely to the Fed statement and that is was overdone.  We could see a turnaround later in the day, or even more likely by Friday.  I think the risk/reward on a swing basis favors the long side right now. 

Wednesday, September 21, 2011

Wednesday technically lower but watch Fed

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday technically lower but Fed news will determine outcome.
  • ES pivot 1198.58.  Pivot in play: staying above is bullish.
  • Rest of week bias uncertain, depends on Fed.
  • Monthly outlook: bias uncertain, watch Fed meeting for clues.
  • ES Fantasy Trader standing aside..

The Lavalite Market
 I just had to shake my head at today's action.  First the Dow goes up over 100 points, then it comes down over 100 points  All for no particular reason I can fathom.  I'm calling this the Lavalite Market, in honor of the the last book in great Phillip Jose Farmer's classic 1979 World of Tiers sci-fi quintology, The Lavalite World.

You see, the premise of the Lavalite World was that although the planet had a surface, it was always changing like the blobs in a lavalite.  Therefore you had no reference points.  If you left home in the morning, you could come back that afternoon and have no idea where your house had gone.  Supposedly, living there drove you mad.  (And remember, there was no GPS in 1979).

Anyway, that's what this market feels like.  Last night I thought we'd be down today and indeed that's how the Dow got started.  Then it took off.  I thought I'd blown it badly.  Then it wandered around.  Then it ended by giving back all its gains to finish up just 7.65 points.  But the Nasdaq and SPX were down.  No rhyme, no reason, it's like living on a lavalite world.

The technicals

Short form again tonight.  All of the factors that were in play last night are still in play.  It looked like we were going lower today but instead we went up.  And then down.  It may simply be a case of being a day early.  I tend to do that.  Or the lavalite blobs may simply be roving about at random.

In any case, tonight the technicals, oversold as they are don't matter a whole lot because everything will hinge on what the Fed has to say after their meeting on Wednesday.  For what it's worth, the market index futures are busy pricing in good news right now, with ES up nearly half a percent at 1 AM EDT.  But the charts all look overbought.

So where are we going Wednesday?  I haven't the faintest idea.  Tonight is a good night to get some sleep and watch the entertainment tomorrow.  It's one of those days that are just too tough to call.


I sold my Intel trade today for a nice 2.21 point profit.  I think I've caught most of the latest move.  I'm still holding onto my Ford though.  It's up almost half a point since I bought it at 10, so I can afford to let it run some more.  I'm still trading very little, what with the VIX stubbornly refusing to come down out of the stratosphere.

ES Fantasy Trader

We covered our short this morning at  1191.25 for a small loss.  The account is now $118,875 since inception on 8/18 after 16 trades, 10 wins, 6 losses.   Tonight we are standing aside due to the uncertainty surrounding the Fed's current meeting.

SLD    10    ES    false    DEC11 Futures     1191.25  USD    GLOBEX    SEP 19 02:15:34
BOT    10    ES    false    DEC11 Futures     1188.50  USD    GLOBEX    SEP 19 11:38:45

Tuesday, September 20, 2011

Tuesday going lower again

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday lower, high confidence.  Bull-bear ratio is 1:8.
  • ES daily pivot 1194.33.  In play: staying below is bearish.
  • Rest of week bias uncertain, rebound possible by Friday.
  • Monthly outlook: bias uncertain, watch Fed meeting for clues.
  • ES Fantasy Trader opened new short position at 1190.00.

Another news driven day for the markets, with a horrible opening on lousy Greek news, followed by a recovery on supposedly good Greek news.  Or rumors.  Or something.  Who the heck can tell anymore.  Since we can only study today's data here and not tomorrow's newswires, take everything below with a grain of salt, or a cup of extra virgin Greek olive oil.

The technicals

So let's run down the usual suspects tonight, awarding bull/bear points along the way.

The Dow: Put in a vaguely disturbing looking hanging man cum bearish engulfing pattern today.  Unable to break through resistance at 11,500 and with its indicators now all solidly in overbought territory, it ain't looking good for tomorrow in Dowville.  +1 bears.

The VIX: Rose 5.65% today but did it on an unusual gap-up red candle.  Having reversed a five day losing streak and with its stochastic about to execute a bullish crossover, it is not unreasonable to expect the VIX to move higher Tuesday.  +1 bears.

VIX futures: Similar story here.  The futures gapped up on a red candle.  However, the case for continued increases here is not as compelling as for the VIX itself, leading me to believe that we're not in for a major downturn in the market on Tuesday.  But +1 bears anyway.

Market index futures: All three are down at 1:53 AM with ES down two thirds of a percent.  ES peaked two days ago but its indicators are still highly overbought.  Nothing here suggests anything but lower futures tomorrow, hence another +1 bears.

ES daily pivot: Now 1194.33.  With ES at 1190, the pivot is in play for Tuesday.  Breaking though it and holding there would be bullish indeed.  A rejected breakout or simply staying beneath would be bearish.  So far the latter seems to be occurring, so +1 bears.

Dollar index:The dollar gained today on the strength of euro woes, crossing back above its 200 day MA.  With its stochastic making a bullish crossover, I look for further dollar strength on Tuesday.  Bad for stocks, so +1 bears.

Oil: Moved to the bottom of its recent trading range today.  Support here has held for a month, so I'd guess oil's going higher tomorrow.  With oil now inversely correlated to the market, this is +1 bears.

Morningstar Market Fair Value Index: Unchanged today at 0.86 after three days of gains, so no points here.

History: The Dow is down this week in 16 of the last 20 years, according to The Stock Traders Almanac, and within the week, all five days are down so +1 bears for that.  Also, we seem to be continuing the 15 day wave action set up in the last two months.

Sentiment: The new Ticker Sense Blogger Sentiment Poll  came out today and the numbers are about as lopsided as they've ever been: 50% bearish and only 14% bullish.  As I wrote last week, I consider anything below 20% bullish to be contrarian-bullish.  Today's readings are, according to the accompanying chart, the lowest since March 2007, just before the Dow went on an extended rally.

With sentiment this divergent, I have to call these results bullish.  For the record, I voted bullish, both on expectations that we'd see the results we got today as well as anticipation that the Fed will make some moves to help out the Street this week.

     And the winner is...

The bears, by a lopsided 1:8 bull-bear ratio.  This would indicate that the market is not done going down yet, so I'm looking for a lower close Tuesday.

ES Fantasy Trader

We covered our short this morning at  1181.50 for a small profit.  The account is now $120,250 since inception on 8/18 after 15 trades, 10 wins, 5 losses.

SLD    10    ES    false    DEC11 Futures     1191.25   USD    GLOBEX    02:15:34
BOT    10    ES    false    DEC11 Futures     1188.50   USD    GLOBEX    11:38:45

Tonight, we go short again at 1190.00.

And in closing, I'm not above some silliness.  I'm playing the CNBC Million Dollar Portolio Challenge, along with seemingly the entire rest of the world.  After one day, I'm ranking 91.77%.  Right now it's kind of tough to make any money here since apparently you can neither short stocks nor buy inverse ETF's in this contest.  Pity.

Monday, September 19, 2011

Monday going lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Monday lower, high probability
  • ES pivot 1207.00. Current price is below that.
  • Rest of week bias higher, rebound possible by Thursday.
  • Monthly outlook: bias higher, see previous post for details.
  • ES Fantasy Trader opened new short position at 1191.25.

Last Thursday night I called for more upside even after a four day rally in the Dow and we in fact did manage to tack on an additional 76 points to finish off a nicely rewarding week.  The weekly Dow candle in fact made a strong bullish engulfing pattern that took us to the top, or slightly above a trading range that goes back five weeks now.  In addition, the weekly indicators all appear to have bottomed from oversold levels and are turning upward now.  Coupled with much higher volume last week than the week before, this all looks bullish on a weekly basis.

The technicals

Short version again tonight.  That said, the daily charts aren't looking as promising.  The Dow lately has been running on a cycle of about 15 days between peaks.  It's been exactly that long since the last peak.  We're also looking at a 5 day winning streak, the longest since last June.  And the daily indicators are now in overbought territory.  RSI has actually already peaked, a bearish sign.

And the futures are all significantly lower tonight, ES being down by 1.7% at 2:25 AM EDT.  It's also below its new daily pivot of 1207.00.    So while the weekly outlook may be positive, things aren't looking so hot for Monday, especially with more bad news out of Greece again.  So I'm looking for a lower close Monday possibly followed by some recovery later on this week, more than likely on Fed news.  That will clearly trump the technicals this week.

ES Fantasy Trader

I had to cancel my long trade from last Thursday.  I thought the contract would roll over automatically from U to Z, but it didn't leaving my trade in limbo and with no way to fairly value it.  So all I can say is that I was on the right side and it would have made money had I entered the Z contract.  But I'll leave the stats as they were and call this one a wash.  For tonight, we're going short at 1191.25.

Sunday, September 18, 2011

Monthly outlook by regression trend analysis

A tale of three regressions

For this Sunday, we take a longer term look at the market. Presented here, for your approval is a monthly chart of the Dow going back seven years (click on the chart to enlarge):

In it, I have drawn three regression trend channels. Recall that the RTC defines the limits of a trend to a given statistical probability. If a candle goes outside the upper or lower trend limits, then there is a 95% chance (according to the parameters I set) that the trend is over. The lower panels are, top to bottom, volume, RSI, momentum, money flow, stochastic, and OBV. These are my favorite indicators.

Let's start with the RTC's. The first is the bull market that ran from 2005 to the all-time market peak in late 2007. The second is the bull run from the post Great Recession crash in March 2009 to the peak in May of this year. The third is a descending RTC that began at the May peak and continues to this day. The other lines on the chart are the Bollinger bands (in blue), Bollinger center line (black), 20 MA (red) and 200 MA (dotted orange).

I don't know about you, but I am struck by the similarites to today's chart and the 05-07 RTC. Notice how both rising RTC's ended with candles dropping from the upper edge on down to the lower edge, where a hammer was put in. Compare January '08 to August '11.

This leaves us at a crossroads. In February '08, the market continued lower, falling out of the RTC and causing a bearish trigger. And you can see how that ended. Right now, the half-baked September candle still has a chance to end up looking like February '08. If so, then history would suggest that we might see a one or two month rally. That dovetails nicely with the historical strength of the fourth quarter.

Right now we're in two RTC's: a rising one from '09, and a shorter descending one from May of this year.  We're on the verge of falling out of the rising one and a long way from exiting the descending one.  That's all bearish.

On the other hand, note how the monthly indicators have all traveled far from their overbought peaks. The RSI and stochastic in particular are near levels from which the 2010 rally started last July. Combine this with strong support at 11,000, I think we have more chance of going higher between now and the end of the year than we do of going lower. However, I'm fairly pessimistic about 2012.  It's possible to have a few months of gains while still remaining inside the third RTC.

There's a limit to how far and how often you can kick the can down the road, and it seems like the world has been kicking a whole recycling center's worth of cans lately.  Everything depends on how much you think now is like 2008.  There are certainly plenty of opinions on both sides.  Personally, I don't think it's that bad, but it's still pretty bad.