Thursday, May 3, 2012

Thursday lower unless pivot holds

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday lower - low confidence.
  • ES pivot 1397.17Holding below is bearish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias up.
  • ES Fantasy Trader remains short at 1386.75.

Last night's call was "Wednesday higher unless pivot broken" with the hedge "If ES should drop below 1401.17 on Wednesday morning, then look for a lower close.".  ES did indeed drop below the pivot at 3:30 AM, after the Night Owl had gone to bed (hey, even I have to sleep sometime).  And that was that.  The Dow closed down 10.75 points after a late day rally.  Moving right along, let's see what Thursday might have in store for us...

The technicals

The Dow: The Dow put in a tall skinny hanging man, almost a dragonfly doji with its small decline today.  With indicators that have been overbought for three days now and just keep getting more so, the Dow is due for a break any day now.

The VIX:  The VIX managed a 1.69% gain today but remained stymied by resistance at 17.25.  To me, this is starting to look like an ascending triangle so one might expect the VIX to pop up over this resistance fairly shortly.  The fact that today put in a higher low puts the kabosh on my theory last night that the VIX might be going lower.  Now I'm thinking higher is more likely.

Market index futures: Today's ES candle pretty much copied the Dow, with a tall hanging man that topped out at yesterday's close.  And the indicators are all quite overbought now.  At 1:28 AM EDT all three futures are just barely lower, with ES down only one tick.

ES daily pivot: Tonight the pivot drops from 1401.17 to 1397.17.  With ES virtually unchanged in the overnight so far this now leaves us just barely below the pivot, but it's already acting as resistance.  If ES is unable to break above this level by morning, that will be a bearish confirmation.  As I write, ES is tracking exactly along this line.

Dollar index: Last night this chart was too tough to read.  Well the confusion melted away today and the 200 day MA proved no obstacle as the dollar just blasted through it to gap up for a 0.34% gain.  The bullish stochastic crossover is complete, the indicators are now rising from oversold and the euro dropped out of a two week rising RTC.  To me, thsi all spells higher dollar on Thursday and that's bad for stocks.

And while we're on the subject, an alert reader asked today where to find the dollar index, $USDUPX, that I use here.  This is the symbol in eSignal for the Deutsche Bank US Dollar Index.  If you don't have eSignal, you can view it here from Bloomberg.  Or you can simply watch UUP, the PowerShares ETF that tracks this index.

Transportation: People often look to the trans as market predictors.  Well look at this - on a day when the Dow was down 0.08% and the S&P lost 0.25%, the trans were up 0.92%.  And that was on top of a similar size gain yesterday.  The indicators are just now becoming overbought and the upper BB is still 23 points away.  Two strong green candles is never a reversal warning, so one more day higher is not out of the question, and that would be good for the broader market.

History: According to The Stock Traders Almanac, Thursday is historically pretty bearish.


Month right  wrong  no call
April   7      9      2
May     1      1 

Performance - another view:

My broker has come out with an interesting tool called "Portfolio Analyst" that lets you benchmark your results versus other metrics with a single click.  Here's my graph for April.  The purple line is my account.  The black box is where I redacted my account number. The Sharpe ratio here is 4.15.

     And the winner is...

Tonight, the majority of the charts seem to be getting tired, if not outright pessimistic.  Still, just before 2 AM, ES has broken above the pivot.  Therefore I'm going to make another conditional call.  If we're still above the pivot by morning, a higher close Thursday is likely.  But if ES sinks back under the pivot, watch for a lower close.  The majority of the evidence suggests lower, but you really can't ignore these futures moves about the pivot, especially around 2 AM.

ES Fantasy Trader

Portfolio stats:  the account still remains at $141,750, after 33 trades (26 wins, 7 losses) starting from $100,000 on 1/1  Tonight we are still not giving up on this trade and remaining short at 1386.75.  I know it's frustrating just holding on and doing nothing, but that's one thing about trading - doing nothing can also be doing something.  I have a feeling this trade will end up being profitable before too long.

Reminder - you can now follow these entries and exits live on Twitter @nightowltrader.  And let me note that I always buy on the ask and sell on the bid to make things more fair.  This way there's no question that the trade would have executed for real.  But also don't forget that because ES often moves quickly, the price may have changed in the time it takes me to type in the Twitter post.  Also keep in mind that these trades run with no stops and no preset targets.

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