Actionable ideas for the busy trader delivered daily right up front
- Friday uncertain.
- ES pivot 1319.75. Holding above is bullish..
- Next week bias lower technically.
- Monthly outlook: bias down.
- ES Fantasy Trader standing aside.
Because of a lack of clarity last night, I appealed to the ES pivot, figuring that we'd go higher if we could stay above it in the morning. Well we did and the Dow delivered a handy 156 point gain. Now we have to face Friday with the prospect of upcoming elections in Greece over the weekend. Will today's rally inspire follow-through or profit-taking? Let's figure it out.
The technicals
The Dow: Today the Dow continued its alternating up/down pattern for the fifth straight day. However, its 1.24% gain did finally break the consolidation to the upside. In fact the Dow nearly hit its upper BB before retreating a bit to close at 12,652. So resistance is now at 12,727 which leaves a bit more room to run higher, but the up/down pattern would suggest that tomorrow goes lower. There's been some talk of today's action as a breakout, but the Dow has had so much trouble getting a multi-day rally going lately, it's just going to have to show me before I believe that.
The VIX: The VIX bounced off its 200 day MA resistance and took a big 10.67% drop today. This was enough to turn the indicators back down again. But I'd be cautious about that because they were just coming off oversold and large one day moves tend to induce distortions in the patterns. Although technically, this is basically a bearish engulfing candle, I'm a bit cautious about it. However, the futures do support a move lower on Friday, and that would be good for stocks.
Market index futures: All three futures are just barely hanging on to gains at 1:33 AM EDT with ES up a scant 0.04%. Apparently, the enthusiasm of recent nights has slowed somewhat. ES has this same yo-yo pattern going as the Dow, but if we back off to the weekly chart, we see that candle (which is almost completely baked now) is forming a distinct hanging man, a bearish sign for next week.
ES daily pivot: Tonight the pivot rises from 1311.17 to 1319.75. This still leaves ES above the new number but the spread has been cut in half. Even so, a seven point gap is pretty positive - if it can be maintained. Wit no real trend since 11 PM, it's hard to say where it may go next or what those pesky Europeans will do to it when they start trading around 2 AM our time.
Dollar index: The dollar continued lower today, losing another 0.12% and restoring its inverse relationship to stocks. This moved it into oversold territory but without a reversal candle or support line nearby, it could go lower again on Friday.
Transportation: Last night the trans were really not looking so hot, but they delivered an upside surprise (to me anyway) in the form of a 1% gain on the day. Unfortunately, they remain range-bound, with support at the 200 day MA and resistance at 5060. But now they're at the upper end and with indicators that are even more overbought than yesterday it is put up or shut up time for the trans. If they can't break the 5060 resistance line (and they're 0 for 6 here), they're going lower on Friday.
Accuracy (daily calls):
Month right wrong no call conditional batting average points trade
April 7 9 2 .438
May 10 7 3 2 .632
June 4 2 3 1 .667 +77 +$66
And the winner is...
A very tricky situation tonight. Friday is a triple-witching with all the volatility that implies. But also it's the last trading day before the weekend Greek elections. A leftist win there would hurt the markets. However, the banks have signaled an intention to put out any resulting Greece fire with big gobs of cash. So what to do? Personally, I believe the Greeks will not choose to exit the euro. But I'm not sure enough about that to be putting on any big bets right now and I'm definitely not going to be wanting to hold any futures positions going into the weekend. In addition, the TLT appears to have put in a short-term bottom suggesting more money flowing into bonds.
Tonight I'm feeling cautious. I see more downside risk than upside potential from here. And hey, every move up for the last six days has been followed by another one down, so on that basis alone, we're going lower on Friday. But with so much riding on news from Europe, I am once again just going to declare that Friday is uncertain and take the day off. Not that I'm not trading - today I sold some OMEX and ZTR, and bought NCZ and NCV. But ES trades - no thanks.
One other note of caution - today my account hit a new high for the year - always an ominous sign :-) And a final note that supports the indecision in the market I'm seeing - J-Trader is reporting that one of his systems is going long and the other is short. Go figure.
ES Fantasy Trader
Portfolio stats: with no trade last night the account remains at $129,250 after 43 trades (33 wins, 10 losses) starting from $100,000 on 1/1 With no obvious edge once again, there's still no trade tonight.
CUA (Commonly Used Acronyms)
BB - Bollinger Bands
DCB - Dead Cat Bounce
MA - Moving Average
RTC - Regression Trend Channel
YTD - Year To Date
Disclaimer: (My lawyer made me do it) This blog is not trading or investment advice, account management or direction. All trades listed here are presented only as examples of the author's personal trading style. Investing entails significant risk and trading entails even greater risks. Deal with it.
Posts
Michele-
ReplyDeleteThere are few times in any given period-of-time that an investor encounters genuine 'event risk'. Usually it's just the apparency of such risk, and the event itself IS predictable, IS part of the general economic flow, and CAN be somewhat discounted in advance... which is why one buys the 'mysterious' run-up, and sells the actual news.
But a Japanese Nuclear plant on red alert and maybe about to go thermo, a massive oil spill capping-attempt at the bottom of the ocean, a Greek election, or the eventual course of a hurricane... THIS is why golf was invented, this was why knitting was invented. Unless they have a good reason to feel they have inside info or unique insight into one of these situations, investors should simply fold hands and go flat or baseline until the result comes in. All that is foregone is an oppty cost, in this case the opportunity to place a sheer guess. Not much cost, imo.
Regarding the 18--21 day moving average period, there is something about the human brain and how long it holds bits of info that makes this a reliable early detection periodicity for determining the short term trend of anything which has trendiness to it. The research work of Norman Fosback established this back in the late 1980s, and it seems to still be true.
Ah, I'm glad at least one other person agrees with me. When I first started trading, I thought that I wasn't really working unless I was furiously executing trades. Oddly enough, I eventually discovered that the less I traded, the more money I made. I'm going to use today to work around the house and run some errands. No trades til the Greeks figure out who they want for leaders.
ReplyDeleteIt's sort of like flying. You see a big thunderstorm ahead - do you just fly through it because that's making progress? No, you find the nearest airport, land, and sit around watching the show until it all blows over, then go back on your way. I've found you live longer that way.
Interesting observation about the 20 day MA. I'll have to look up this Fosback of whom you speak. Thanks for the comments and have a great weekend!
Norm Fosback (author "Stock Market Logic"), Martin Zweig, Gerald Appel, Welles Wilder, Alex Elder-- these were the great pioneers of technical analysis who laid much of the foundation of its modern practice. They were also Newsletter writers and hands-on money managers, not just academics.
DeleteMany of the indicators in the basic Stockcharts tool-kit were originated by these folks.
That's what I love about writing this blog - I'm always learning new things. I'm not too proud to admit I did not know of Fosback, though after doing some reading up, it's quite obvious I should have. Thanks!
Delete"Stock Market Logic" was one of the very first books I read on trading when I first started back in the 80's. Daniel has itemized the giants of this field. Most of the successful traders of this age will credit any one of these authors as the individual who helped them achieve their financial and professional goals as traders. I would add Jack Schwager's "Market Wizards" and his follow up book - "The New Market Wizards". His interviews with the top traders provides an invaluable insight into how the exceptional masters of this game formulated strategies that work in all kinds of markets.
ReplyDeleteBest!