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- Wednesday higher, low confidence.
- ES pivot 1356.75. Holding below is bearish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias down.
- ES Fantasy Trader remains long at 1365.00.
Huh - well I sure didn't see that one coming. I thought the latest Greek drama, version 258,243, was already priced in. I guess I was wrong as the Dow dumped another 76 points on Tuesday. Those freakin' Greeks! Tonight we review the smoking wreckage to see if I was a day early or just plain off my rocker.
The technicals
The Dow: Yesterday's little hammer that fooled me into thinking we'd go higher today was replaced instead with a much bigger hammer, one that very nearly hit the lower BB. And even though things are looking pretty miserable right now, two hammers in a row like this are quite often a good reversal indicator. Aside from that, the indicators all got only more oversold today than Monday.
The VIX: Despite spiking to an intraday high just over 20 this morning, the VIX regained some sanity to actually close higher by just 0.58% on a giant red spinning top. The failure of the VIX to either open or close above yesterday's open confirms, for me anyway, yesterday's dark cloud cover. And the bearish stochastic crossover is >< that close to completing. I still have to believe the VIX goes lower Wednesday, which would be bullish for stocks.
Market index futures: Tonight, all three futures are running in the red with ES down a third of a percent at 1:52 AM EDT. The chart is somewhat unclear, with a big hammer today following yesterday's fat spinning top. The overnight follow through so far is negative enough to keep us inside what is anow a six day descending RTC.
On the other hand, the indicators are all quite oversold now and we have touched the lower BB three days running. And support seems to continue coming in at the 1340-1350 area. This is now reminding me a lot of the early April nastiness we saw. If that history repeats itself, this downtrend should be just about exhausted.
ES daily pivot: Tonight the pivot drops from 1359.50 to 1356.75. Even at that, we're still beneath, which is bearish.
Dollar index: After gapping up yesterday, not only did the dollar not move lower to form an evening star as I expected - it moved higher, and in confusing fashion with a second red candle in a row. And it is even more overbought now than last night. Today its RSI hit 100. It doesn't go any higher than that. Technically, it's really looking ready to go lower. Realistically, it's now being controlled by the antics in Europe.
Transportation: A big hammer in the $TRAN today, raising at least the possibility of a reversal in a day or two.
History: According to The Stock Traders Almanac, Thursday is historically just slightly bullish.
Accuracy:
Month right wrong no call
April 7 9 2May 3 2 1
And the winner is...
Sigh - it's starting to look a lot like 2011 all over again, right down to the April peak. Maybe the sell-in-May'ers were right after all. That said, everything I sadi last night about overbought and oversold is still true tonight, only now even more so. The question now, is who will be in the driver's seat on Wednesday? The technicals, or the news stories from Europe that jerked us around so badly last summer?
I'm giving my bounce thesis one more shot at redemption on Wednesday, with the understanding that it could easily be sidetracked by some news item in the FT about how the Greek leftists can't agree on how many olives should go in a martini. News or no news, the markets do not stay this oversold forever. I will take advantage of the reversal higher, when and if it comes, to do my sell-in-May-ing.
As is often the case, I think the ES pivot will be key tonight. Watch to see when you get up Wednesday morning if ES has managed to go above 1356.75. That will greatly strengthen the case for a higher close. If we hit that level and just bounce off, it's a lower close.
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 holding on to this long at 1365.00. I think I was a day early with this trade, so we're going to exercise some patience with it.
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.
Posts
Hi Michelle,
ReplyDeleteFirst off thank you for the excellently detailed analysis. Very impressive and helpful.
As you recently pointed out the pivot seems to be a very helpful tool to have in one's trading perspective. I headed over to TraderFeed hoping to find a link that shows how the pivot's to be calculated, but I couldn't. [On a sidenote, I see so many jewels at TraderFeed that I hope I get to reading them sooner than later! Thanks for the pointer!]
Would be great if you could share any specific link/pointer you have for pivot calculation.
Another question about stop losses -- I know you've touched on this topic recently. But IF these trades were 'real' trades, would you still let them run 20 points against you? Perhaps this is okay to do in the reasonably range-bound markets we've had the past few months, but I wonder how it's gonna fair in a more volatile market.
Finally, thank you for the tweets. I am one of the subscribers :)
The pivot is a pretty simple calculation. Here's a calculator that lets you compute it yourself: http://www.earnforex.com/pivot-points-calculator.
ReplyDeleteTrader Feed is really great - I still go back and reread posts there. I give Dr. Steenbarger the credit for helping me become a profitable trader.
Indeed, I doubt I'd take this much heat on real ES trades as with pretend money. I'm not sure I'd be able to sleep at night knowing I have that kind of trade on. On the other hand, if you look at the results of my fantasy trade account (up 50%) compared to my real account (up 15% YTD), you have to wonder. It clearly demonstrates that with big risks come big rewards.
I do think though that a volatile market is actually better for running without stops as it increases your odds of getting a quick reversal and turning a loser into a winner. What you hate to have happen is be stuck long in a market that does nothing but trend down.
Anyway, thanks for reading. Always happy to get comments on my posts.