Friday, May 11, 2012

Friday weakly higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Friday higher - very low confidence..
  • ES pivot 1355.67Holding below is bearish.
  • Next week bias higher technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader remains long at 1365.00.

It was touch and go for a while there coming into the close, but ultimately the Dow managed to finish up a modest 20 points and save me from having to eat my hat.  Whew!  So does this mean we're out of the woods?  Not so fast - read on...

The technicals

The Dow: You don't see the combination of a hammer followed by an inverted hammer very often, but we got one today.  You'd think that if a hammer is a bullish reversal candle, then the inverted hammer should be bearish, but it isn't.  They're both bullish reversal signs.  Taken together, they're even more bullish.  I found two instances of a hammer/inverted hammer after a decline in the last five years.  In both cases, the next day was higher.

The indicators, which by now are about as oversold as they get, support this.  However, for the time being, we're still stuck in a seven day declining RTC.  But it would take just one day of sideways action to get a bullish RTC setup, so this bears watching.  It's worth noting in passing that the descending RTC on the hourly chart was exited at 11 AM today.

The VIX:  Last night I was so convinced the VIX would go lower today I offered to eat my hat if it didn't.  Fortunately the VIX obliged me with a nice 6.23% decline that started the indicators on a trip down from overbought, taking the VIX back below 20 in the process.  This leaves us just teetering on the edge of the latest rising RTC.  It all looks ready for more downside, though I'm not quite as certain about it tonight, particularly in view of the JPM news that came out late today.

Market index futures: The strangeness just continues here.  At 1:34 AM EDT all three futures are running lower with ES down a disturbing 0.68%.  But if you look at the daily chart, we're not seeing a continuation of last week's declines.  Instead we're getting some sideways consolidation.  And that took us entirely outside the descending RTC today.  And the overnight action, despite being down pretty substantially, is actually a bullish trigger.  Go figure.

ES daily pivot: Tonight the pivot actually rises from 1350.33 to 1355.67.  Where we were just about even with the pivot this evening, we're now well below it and showing no signs of mounting an attack on this level - not a good sign.

Dollar index: The dollar did not go lower today as I expected it might, gaining instead 0.03%.  However, the body of the candle was entirely below yesterday's star and off the upper BB suggesting lower to come which would be good for stocks.  The indicators are also massively overbought here.  RSI remained at 100 for the third day running.  The dollar tends to respect its upper BB about the same as the VIX, so I'd say a lower dollar is more likely from here.

Transportation: Last night I called this chart weak and kicked some sand in its face.  Well today the trans dropped another 0.49%.  But they did it on an inverted hammer here too that dribbled down the lower BB and left the indicators finally entering oversold territory.  It's a reversal warning, but one that requires confirmation.

History: According to The Stock Traders Almanac, Thursday is historically basically neutral.


Month right  wrong  no call
April   7      9      2
May     5      2      1
     And the winner is...

This one's a real puzzler.  The charts all look fairly bullish to me tonight - even ES.  But the actual direction of ES in the overnight is down, and down significantly, and going lower as I write.  On the other hand, we bounced off a strong 1344 support level earlier this evening.  It bothers me greatly that the futures are running so poorly right now, but we've seen reversals happen in the wee hours before.  In the final analysis, I'm going to go waaaay out on the limb and vote with the charts, and with some misgivings call for a higher close Friday.  Maybe.  We'll see.

ES Fantasy Trader

Portfolio stats:  the account remains $150,125 after 35 trades (28 wins, 7 losses) starting from $100,000 on 1/1  Tonight we're still holding on to this long at 1365.00, as I hum along to "Some Day My Prince Will Come".


  1. Michele,
    The S&P is down .84% (1346 - 2:15 am) which I suspect is the reaction to the fallout from the JPM announcement. Did you factor this into your analysis? If this continues into the open tomorrow, we could be in for some further weakness, and easily break down through 1344.

  2. Indeed. Last night's call was tough because I make my calls for the Dow and JPM is a Dow component. I finally decided that there were enough positive signs in the charts in general to outweigh whatever damage JPM might inflict. So far (at noon on Friday) that thesis seems to be playing out.

    I really think SPX 1344 is off the table, at least in the short term.

  3. Well done! You've got a winner today! I don't think that we've heard the last from JPM tho.

  4. This comment has been removed by the author.

  5. Thanks! So far, so good, eh?

    Yeah, they're all over JPM on Marketwatch and CNBC today. To quote Princess Ida of Gilbert & Sullivan fame, "He who flies highest, fallest furthest".

    (The "deleted comment" above was just because I made a typo, and stupid Blogspot doesn't let you edit completed comments).


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