Actionable ideas for the busy trader delivered daily right up front
- Thursday higher unless ES breaks under pivot, low confidence.
- ES pivot 1311.17. Holding above is bullish.
- Friday bias lower technically.
- Monthly outlook: bias down.
- ES Fantasy Trader standing aside.
Last night's call was "uncertain with a bias lower" and I think that's a pretty good description of what happened today, as the Dow crossed the unchanged line eight times before finally moving decisively lower just before 2 PM - and then making a valiant rally attempt in the closing minutes that took us off the lows of the day but still left a 77 point loss. So we remain in consolidation mode. What will it take to get a break? Let's peruse the charts for an answer.
The technicals
The Dow: The Dow meandered about today until some ratings agency decided that Spanish bonds weren't just plain junk, they were really junk. That should have come as a total surprise to absolutely no one, but it nonetheless tanked the index and that was that. So we continue stuck in a trading range with now four alternating up/down days and no real way to gain any meaningful insights from each succeeding candle. However, we did trade outside the rising RTC today and that's a bearish trigger. These are usually pretty reliable. Add to that the indicators which are all overbought, and a stochastic that seems to be trying to form a bearish crossover but is for the moment basically just tangled up in itself. Overall though, this chart seems to have more downside risk than upside potential.
The VIX: Meanwhile the VIX does seem to have established an uptrend, gaining nearly 10% today to close just above 24, an advance that was basically stymied by the 200 day MA at 24.55. Last night I mentioned the bullish RTC trigger here, and whadaya know, today we got the pay-off. But with indicators still just coming off oversold, I would not be surprised to see the VIX move higher again on Thursday, bad for stocks.
Market index futures: All three futures are up at 1:12 AM EDT, with ES gaining 0.42%. There's still no clear trend in sight on this chart and the indicators are just as confused. Money flow is way down and just took an upward hook but RSI is just coming off overbought - I never saw that combination before. Then we have the stochastic which is just executing a bullish crossover but doing it form a level where normally a bearish crossover would occur.
Backing out to the weekly chart again, the current candle, though only half-cooked, is starting to look like a dark cloud cover, which is a strong bearish sign for next week. However, I think what's really going to drive the market early next week is the Greek elections this weekend.
ES daily pivot: Tonight the pivot ticks down from 1312.50 to 1311.17. With the overnight gains in ES, we actually broke above the old number at 11:05 PM and are now a bit higher above the new pivot, a positive development.
Dollar index: The dollar today continued its wayward ways, falling 0.47% (contrary to my expectations) even as the Dow lost 0.62%. The long-standing inverse dollar/stock correlation seems to be breaking down here reducing the utility of this chart as a predictor. I think it's basically all about the euro here.
Transportation:The trans continued to be supported by their 200 day MA at 4976 but nonetheless posted a 0.57% loss today on a spinning top. This candle also adds to a developing symmetrical triangle. Since these usually exit in the direction from which they were entered, in this case from below, this portends poorly for this chart. Supporting this idea are the indicators, now quite oversold, along with a stochastic that just completed a bearish crossover. I'm not liking this one.
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 0 .667 +77 +$66
And the winner is...
This market just keeps getting more and more opaque. I'm seeing a whole bunch of bearish signs in the charts, including the TLT which is starting to come off oversold, and yet the futures are all rising in the overnight. This makes no sense to me. So I'm going to make a conditional call for Thursday. If ES stays above its daily pivot, 1311.17, then we're going to close higher on Thursday. But if ES breaks below the pivot convincingly in the morning, then we're going lower. That's about the only way I can reconcile the divergence between the futures and the charts. We've already seen one night this week where the futures were up big time in the overnight but the following day closed lower. I'm open to alternative interpretations.
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
“..bunch of bearish signs in the charts, including the TLT which is starting to come off oversold, and yet the futures are all rising in the overnight. This makes no sense to me.”
ReplyDeleteI have a speculation, Michele. Perhaps the futures for the U.S. markets are, these days, less a studied guess at the-near term horizon for our markets, but more of a reflexive "tail wagging" from overseas investors. At times colored by their deep gloom and pessimism. At other times, colored by a fantasy of US equities as a "safe haven".
(The Europeans should all just stand stiffly at attention and play their national anthems and go down with their ship. There are no "safe havens" for them.)
I've noticed quite often during our own trading day how the Asian market ETFs will trade more in a pattern that mirrors the Dow and SPX that day, than the rhyme or reason of their own underlying economies or Indexes.
Just the other day the China ETF FXI was a leading relative-strength fund to that point intraday, on a general market UP day-- even though the Chinese markets underlying it were strongly down both the night before and then again the night after, so there was no real strength for it to mirror!
So perhaps it's something like that.
Now, regarding the technical picture, here's a piece of advice. It's not good advice, but it has a kind of merit to it. I follow it myself.
When trend is snerdling sideways in a spiky and noxious fashion, as it is now, and all forms of analysis yield the contradictory-combo you so thoroughly laid out above, I follow this rule. If the data point is above it's 20-period MA (simple or exponential, either, indiv preference) then own the underlying security.
If not, do not, or perhaps be short it.
Statistics show this is actually far from a bad strategy. And it avoids investment paralysis, and crossed eyes, and arrives at a clear and decisive conclusion, and that's that.
Reminds me of a story, allegedly true. The old captain, in addition to handing command of the ship over to the new captain, also hands him a sealed envelope.
"Open only in the case of dire emergency" is the parting instruction.
Comes a storm, a crisis, it's all quite overwhelming to the young captain, and in a moment of recollection he rushes to his cabin to open the sealed letter, which contains in it written large:
PORT, left. STARBOARD, right.
It's good to have a reliable stable-datum in times of swirl and uncertainty.
Hmm, you may very well be on to something there, Daniel. I've noticed that often there is a sudden move in the futures right at 2 AM Eastern, which is 8 AM in Europe, right when the Europeans have finished their cafe au lait and Berliners and turned on their PAL and SECAM monitors. They look at ES and exclaim, "Zut alors!" or "Ach du lieber!" and start hitting "buy buy buy" or "sell sell sell".
DeleteAnd I have a vision of how this is going to end. The US has a history of rescuing the Europeans from themselves. It happened in WWI, WWII, and Kosovo. It would not surprise me if the US does not have to step in somehow to put an end to this latest round of nonsense from a large bunch of people who have never learned to get along.
You make an interestnig point about the 20 MA. I suppose it's as good as anything else, though in full disclosure I have to say that I tried a bunch of simiolar systems while devloping my program trading system, invariably with disappointing results. But in a crazy environment like today, I guess this is as good, and probably better than anything else.
Perhaps I should go down to the safe in my basement and see if there's anything besides old tax returns and expired legal documents in it.
Michele,
ReplyDeleteI love your "swing trend indicator" above. That's just how a lot of us feel at this point.
Daniel very ably expresses the view of many market participants at this stage - the Euro mess is manipulating NA markets and we must feel like a puppet on a string. I do not expect any kind of "resolution" for some time to come (some are saying - get used to it - this is what it's going to be like for the next few years!).
I exited the market at the end of April - and do not anticipate returning until the fall. The Euro contagion may keep me out longer - but at this point - Cash is King!
Best!
SB, I think you've got the best answer yet here. I'm really at a loss of how to figure out where this market is headed these days. Last summer, I just stopped trading when the VIX went over 30. I'm on the verge of just taking a vacation for a while right now.
Delete