Tuesday, May 15, 2012

Tuesday higher only if pivot passed

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday higher - low confidence..
  • ES pivot 1339.42Breaking above is bullish.
  • Rest of week bias higher technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader remains long at 1365.00.

My thesis last night was that we'd go higher just because the charts were looking so beaten down.  But today's ugly 125 point loss in the Dow reminds us of why the old saying "Never buy a stock just because it's down" got to be an old saying.  In my defense, I will point out that I made my call conditional on ES crossing up above its pivot in the morning.  Well ES never got close to the pivot and so down we went.  I have a feeling that tonight the pivot may be, uh, pivotal.  Let's take a closer look at the charts and see what we can see.

The technicals

The Dow: Just as we were on the edge of the descending RTC, we got another nosedive today, with the Dow tanking another 125 point thanks to those freakin' Greeks again.  I'm getting tired of this.  Maybe it's time to break up Greece.  Give it to the Albanians.  You never hear of any fiscal crises i Albania, do you?  Uh well anyway, today's plunge brought us right back into the center of the RTC and broke April's support of 12,725.  We're now down 8 of 9 and the indicators are all broken on the floor after a six day oversold run.  You have to go back to last August to find a longer run when it took 10 days of oversold levels before we caught a rally.  But there's still no sign of a reversal yet on this chart.

The VIX:  On the other hand, there are several reversal signs on today's VIX chart.  One, we gapped up for a 10% pop that took us right through the upper BB.  As I always note, the VIX rarely spends more than one day at such levels before coming down.  Two, it formed a hanging man in the process.  Three, it also popped out the left side of the rising RTC.  And finally, closing at 21.87, it is very far from its pivot of 19.48.  The futures are showing a similar setup.

That said, we had a similar pattern last month and after a big gap up on April 9th, the VIX rose even more on the 10th (but it did come back down two days later).

Market index futures: At 1:35 AM EDT, the futures are actually finally all in the green for a change, and by non-trivial amounts.  ES is up 0.39%.  Today's big dump took us cleanly out of the recent consolidation and may have set the stage for the bounce we've all been waiting for.  RSI actually just turned higher for the first time in 9 days.

ES daily pivot: Tonight the pivot take another big step down from 1352.42 to 1339.42.  With ES actually drifting higher in the overnight so far, this puts us just knocking on the door.  You can see how the last five five-minute candles have peaked just below the pivot, looking for a chink in the armor.  If we can break through, that will be a big plus for Tuesday.

Dollar index: Today the dollar gapped up big time for a 0.43% gain that took us way above the upper BB and still inside the rising RTC.  The indicators are all now solidly broken overbought.  These sorts of situations don't last forever though and what goes up must come down, to coin a phrase.  And I'd say we're getting ready to come down real soon now.

Transportation: The trans hit a support line at 5090 today and bounced off.  However, they remain stuck in a declining RTC and have been tracking the lower BB for four days now.  Meanwhile the indicators are as oversold as they were after the big slide last November.  Although there's no evidence of it right now, we remain overdue for a bounce.

History: According to The Stock Traders Almanac, Tuesday is historically fairly bullish.

Sentiment: Once again it's time for the latest weekly TickerSense Blogger Sentiment Poll.  We continue to track the poll to see how well it performs.  Here's the updated cumulative list for this year:

Wk.# Week   % Bullish  % Bearish  NightOwl SPX  Accuracy

  1  1/3        46         21        +     1258   1/1
  2  1/9        56         37        +     1278   2/2
  3  1/17       41         33        +     1289   3/3
  4  1/23       46         32        +     1315   4/4
  5  1/30       48         31        +     1316   5/5
  6  2/6        56         30        +     1345   6/6
  7  2/13       48         31        +     1343   7/7
  8  2/21       44         32        +     1361   8/8
  9  2/27       48         24        +     1366   9/9
 10  3/5        43         26        +     1370  10/10
 11  3/12       46         32        +     1371  11/11
 12  3/19       46         29        +     1404  11/12
 13  3/26       39         29        +     1397  11/13
 14  4/2        42         21        +     1408  11/14
 15  4/9        25         46        -     1398  12/15
 16  4/16       26         48        -     1370  13/15
 17  4/23       30         48        -     1379   
 18  4/30       44         32        +     1403
 19  5/7        23         50        -     1350
 20  5/14       32         44        -     1353

Again, the SPX number is the closing price of the S&P on the Friday before each new poll comes out.  The "NightOwl" column is how I voted.  Since the poll is for 30 days out, after the first four weeks we're able to see how well we did.  This week we see that my bearish call on 4/16 was right, the S&P now being lower than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 13 for 15.  And of course that means that since I voted with the majority back then, the poll as a whole was also correct that week.  So after 16 weeks the poll's accuracy rises to 87% YTD.

Interestingly, the spread between bullish and bearish narrowed considerably this week.  I'm not sure why, since I still voted bearish and remain with the majority here.  My look at the monthly SPX chart shows considerable downside remains and it could easily be a month or two before we reach the end of this decline - maybe even until September.  And as alert reader Daniel commented today, the world economic situation is looking pretty discouraging at the moment.

Month right  wrong  no call  conditional
April   7      9      2
May     5      3      1           1

I'm adding a new column called "Conditional" to my "Accuracy" section.  This will be used to count the days when I give a conditional call like "we'll go higher if ES crosses the pivot, else lower".  That gets a point when the condition is met, either way.  If say ES does not cross the pivot but we close lower anyway, then that would go into the "Wrong" column.

     And the winner is...

I really hate to sound like some sort of inverse Chicken Little here, but once again I'm going to say that I see more upside potential than downside risk just because we're so oversold on every chart.  And that view is at least finally being supported by the futures.  But I will once again have to go to the ES pivot as the final arbiter here.  If we can break above 1339.42 on Tuesday morning, then it's likely we'll see a higher close.  If we bounce off and fail to go above that level, we're in for another down day.

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 once again still holding on to this long at 1365.00.


  1. Michele, the reason we all "never hear of any fiscal crises in Albania" is that they don't have any economy in Albania.

    There a 'fiscal crisis' is like, "the goat is sick".

    I don't think giving Greece to Albania would work. But at least it was a novel solution suggestion... well outside the box.

  2. Well they don't really have an economy in Greece either, do they? Give the northwest to Albania, let Bulgaria and Turkey take the northeast and east, give Crete to Germany for summer vacations, and the coast to the Italians. There's plenty of precedent in Europe for the slicing and dicing of national boundaries.

  3. RTC = Regression Trend Channel. See: http://www.esignalcentral.com/university/get/getManual/eSignal_Manual_ch15.pdf


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