Wednesday, May 30, 2012

Wednesday lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday lower, low confidence
  • ES pivot 1328.42.  Holding under is bearish..
  • Rest of week bias lower technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader goes short at 1327.00.

Today, traders refreshed from a three-day weekend that gave them an opportunity to mull over some ostensibly good news out of Greece, drove the Dow up 126 points.  But this leaves us with a whole silverware drawer-ful of forks in the road, as Europe continues to perk along and the charts deliver mixed messages.  I'm going to see if I can't figure something out here...

The technicals

The Dow: Remember what I said last night?  "We're going to need a close above 12,610, or 155 points from here, to avoid a bearish trigger.".  Well today's high was 12,611.61.  Unfortunately, the close was 12,581.  Close, but as they say, no cigar.  Today's close at 12,580 did break us out of that four day consolidation, but whether this move has legs remains to be seen.

The VIX:  The VIX dropped another 3.35% Tuesday to remain within its descending RTC.  However, the indicators are now showing oversold.  This isn't an immediate reversal indicator, but it does point to an increased likelihood of a higher VIX by the end of the week.

Market index futures: Tonight all three futures are down with ES leading the way lower by 0.51% at 1:08 AM EDT.  Tuesday's gains took us actually off the left edge of the rising RTC.  This type of action is often followed by a move lower, and so far it seems like that's what's happening.  ES is also overbought now and although we're still in a rising RTC, a one day move lower is not out of the question.  We saw something similar last Thursday (higher) and Friday (lower).

ES daily pivot: Tonight the pivot jumps from 1318.92 to 1328.42.  This move, combined with a declining ES in the overnight means we're now below the pivot, though not by much.  Nevertheless, it's a bearish sign.

Dollar index: And remember what I said about this last night?  "it seems that we might be starting to see some decoupling between stocks and the dollar"  Usually, a higher dollar means lower stocks.  But once again, today we saw the dollar gain 0.07% while all the major averages were up too.  At the same time, today's close left us right on the edge of the month-long rising RTC and the pace of the advance has definitely slowed over the past three days.

Still too soon to call this a top, particularly while the euro continues its march down to 1.20, but I'm guessing we might see at least a small retreat in the dollar on Wednesday.  Now if the dollar is becoming positively correlated with stocks, does this mean that a lower dollar will mean lower stocks?  Ya got me, but I will be watching this one closely.

Transportation: The trans turned in an impressive performance today rising 1.16% and breaking decisively above their resistance at 5110.  However, this move also just brought them into overbought territory.  The last few times this has happened, the break has come fairly quickly - none of this spending weeks at a time overbought before moving lower.  Last night I called for lower trans this week (though I didn't say it would be Tuesday).  That's my story and I'm sticking to it.

History: According to The Stock Traders Almanac, Wednesday is historically quite 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  13/16
 17  4/23       30         48        -     1379  14/17
 18  4/30       44         32        +     1403  14/18
 19  5/7        23         50        -     1350
 20  5/14       32         44        -     1353
 21  5/21       30         52        -     1295
 22  5/29       35         42        -     1318

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 bullish call on 4/30 was wrong, the S&P now being lower than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 14 for 18.  And of course that means that since I voted with the majority back then, the poll as a whole was also wrong that week.  So with one third of the year gone the poll's accuracy drops to 78% YTD. Still pretty good.

This week I voted bearish again, keeping me in step with the majority although bearish sentiment declined 10 points since a week ago.  Interestingly, bullish sentiment advanced only half that much, indicating more people now sitting on the sidelines.  This results in the smallest bearish spread of the year - just 7 points.  Still, I'm seeing lower to come on the monthly SPX chart.  Even with recent gains, it si just forming a bearish crossover.and its indicators have now peaked at overbought.

Accuracy (daily calls):

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

     And the winner is...

I think Tuesday's big move up was largely the result of European news over the long weekend.  In the absence of any further positive developments today, I don't see the catalyst that will drive us higher on Wednesday.  In fact, there's a bit of bad news tonight concerning the ECB and Spanish banks.  With many charts now in overbought territory, I don't think it will take much to send us lower, so I'm going to go out on the limb and call for a lower close Wednesday.

ES Fantasy Trader

Portfolio stats: the account now remains at $117,500 after 37 trades (28 wins, 9 losses) starting from $100,000 on 1/1. Tonight we're going short at 1327.00.

Reminder - you can follow the entries and exits for these trades live on Twitter @NightOwlTrader.

CUA (Commonly Used Acronyms)

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


  1. Michele,
    It seems that everytime this market is about to return to a positive tradeable trend, news from Euroland scuttles the ship. Over the past year we have been tossed about by the greek tragedy, which continues to roil the markets. Now, we are threatened by a Spanish flu that poses more serious risk to our markets. The list goes on - talking heads tell us that Euroland (except for Germany)is on the verge of collapse.
    This is a "new" market. Because of these external influences, it's almost next to impossible to establish a position that one can have confidence in achieving a favourable result.
    Perhaps I am ranting here, but I have not been in the market since March - it has become a trader's market (duh!) - and the only safe trade I can see at this moment is in cash.
    Perhaps they should design a volatility index based on the Euro indexes. Everybody would probably short it.
    I applaud your gutsy daily trades - right or wrong - you stick to your plan. That takes serious discipline!

    1. Indeed. It gets tiresome watching this same story unfold all over again. We're in for a bumpy ride I'm afraid. I spent a good part of last summer just sitting on the sidelines when the VIX went into outer space. When the Dow gets yanked up and down by 400 points for four consecutive days like last year, there's no way to put on an intelligent trade.

      "Perhaps they should design a volatility index based on the Euro indexes"

      Ask and ye shall receive: check out the V2X, the Euro STOXX 50 volatility index (VSTOXX), which interestingly is coming down after having peaked on 5/17. (See

      There's also the VDAX if the DAX is more your thing. Or if you meant the euro itself, look at EVZ, the CBOE EuroCurrency Volatility Index. Ah, so many charts, so little time.

      Thanks for writing!

  2. Thanks Michele,

    Good trade on your short ES. I started to short as well, but the main job work got in the way after the market close. Very good short too.

    1. Thanks for the kind words. It's nice to come up with a winner after being crushed on my last trade :-) If you want to short ES, it may not be too late to get in on the game. I'll have more in my post tonight.

  3. This comment has been removed by the author.

    1. (The "deleted" comment above was simply moved to the correct spot because I hit "Comment" instead of "Reply" the first time around.)


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