Thursday, May 24, 2012

Thursday lower again

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday lower - low confidence
  • ES pivot 1309.58.  Breaking under is bearish..
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader goes short at 1310.75.
 Quote of the Day
"You cannot work 35 hours a week, want to retire by 50 with full pension, have eight weeks of holiday and expect to be bailed out by people who work their butts off either in northern Europe or in China. Life does not work like that."
                      - Johann Rupert, head of Swiss company Richemont, on Greece


This really was an odd day.  In the eight years I've been trading full-time, I've never seen a day like today.  Oh sure, we've seen plenty of doji days, but never a half-pipe like today.  All morning it was nothing but gloom and doom.  Then suddenly at noon the sun came out and it was up up and away.  Thankfully the Dow finished down a tad so my call for the day was ultimately correct.  What does this all mean?  Read on...

The technicals

Dow 15 minutes.
The Dow: Check this out.  Tonight I officially announce the discovery of a new pattern: the Happy Face day.  Unfortunately, there isn't quite as much to smile about on the Dow daily chart - a classic bearish dragonfly doji.  And with a star doji the day before, I have to wonder if Mr. Dow might not be sporting a frown at this time Thursday.  Seriously.

The VIX:  And we got more funny business from the VIX today.  It went down 0.67% but you'd never know it from the red candle which played out almost entirely above yesterday's green one.  It's not really a classic dark cloud cover, but it does make you think of one.  And declining indicators support the idea of a lower VIX and that would be good for stocks.

Market index futures: At 12:49 AM EDT all three futures are in the red with ES leading the way lower, down 0.34%.  The daily chart is pretty much the same story as the Dow: a star on Tuesday followed by a dragonfly doji today.  And the overnight (so far at least) is confirming that as a bearish indicator by moving lower.  Although the indicators are only just coming out of oversold territory, it's always possible for their trip higher to be cut short in an environment like this when Europe starts up their annual summer theatre.  And note that while the 1316 level has proven to be a ceiling the past three days, there's nothing but thin air below until 1290.

ES daily pivot: Tonight the pivot steps down from 1316.25 to 1309.58.  Oddly enough, this now puts us above the new pivot, but not by much..  Ordinarily, I'd call breaking above the pivot bullish, but because of its proximity and the fact that ES has been trending lower since 10:30 PM, it's not looking too promising.

Dollar index: Adding to the Kafakesque goings-on, today the dollar went straight up, gapped up a jumbo 0.72% in fact.  This was not a smiley face, it was a rocket ship.  Ordinarily, such a move up would tank the market, but it did not.  Hmmm....  In any case, this puts us right back in the month-long rising RTC.  Ordinarily, I'd say this is bad for stocks, but with pin action like this, who knows.

Transportation: The $TRAN, widely viewed by many as a leading indicator of the market, today decisively popped up out of its month-long descending RTC.  That's a bullish setupBut it formed a hanging man doing it - not a good sign.  And the bullish setup always requires one more day confirmation for proof.  So we'll see how this plays out on Thursday.

History: According to The Stock Traders Almanac, Thursday is historically slightly bullish.

Accuracy (daily calls):

Month right  wrong  no call  conditional
April   7      9      2
May     8      6      2           1

     And the winner is...

I don't really like markets like this because right now they're driven entirely by politics in Europe.  Adding to the uncertainty, we're back to some mixed technical messages again.  But even aside the politics, I'm not liking the combination of a star and a dragonfly doji so I'm going to call Thursday lower.  I'm still not giving up entirely on the bullish RTC breakout in the Dow, but that may have to wait til Friday.  For the time being, the best I can say is that the month-long May downtrend is over.

ES Fantasy Trader

Looks like my decision to pull the plug on my ill-fated long trade last night was a good one, since ES just kept going lower.

Portfolio stats:  the account remains at $123,000 after 36 trades (28 wins, 8 losses) starting from $100,000 on 1/1.  Tonight we go short at 1310.75.

CUA (Commonly Used Acronyms)

BB - Bollinger Band
MA - Moving Average
RTC - Regression Trend Channel


  1. "Europe starts up their annual summer theatre." Heh. Classic.

    I see higher close on Thursday mademoiselle. Let's see how it works out. Long via SSO.

  2. Congratulations! Assuming you weren't talking about the Nasdaq, you got it absolutely right. Not quite sure what prompted the closing rally this time, but it made short work of my expected lower close.


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