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- Tuesday lower, low confidence.
- ES pivot 1338.50. Breaking under is bearish.
- Rest of week bias lower technically.
- Monthly outlook: bias down.
- ES Fantasy Trader goes short at 1338.75..
The market was mixed today with the Nasdaq up nicely, the SPX up a bit and the Dow down a bit. But since my call was for the Dow, that's a miss. Oddly enough, my DIA trade for the day (buy the open, sell the close) was a winner anyway. Go figure. Anyway, it was all pretty much a re-run of exactly a week ago when the Dow ended lower after a news-inspired rally in ES the night before. I guess it was a case of "buy the news, sell the news". We now resume the search for clues as to whether they'll be buying or selling on Tuesday.
The technicals
The Dow: Today's 0.2% drop formed a little hanging man at the top of Friday's big green candle and peeled away from the upper BB. Also, RSI and momentum have peaked at overbought levels. Last night I expected some Greece-fueled limited upside today adding "At some point, the recently overbought nature of the market will reassert itself and we'll go lower.". That moment may now be at hand.
The VIX: The VIX took a huge 13.22% plunge today which I found somewhat surprising given the limited moves in the market as a whole. Normally, I'd have expected more market upside to accompany this sort of VIX action. In any event, we now have a classic bearish three black crows pattern here. Unfortunately, that last crow today flew right through the lower BB. And the VIX usually spends no more than one or two days around its lower BB before heading higher again and that would be bad for stocks. Now that I think of it, this drop in the VIX may simply reflect a lot of people sitting on their hands in advance of the Fed this week.
Market index futures: Today ES put in a pretty clear hanging man that just touched the upper BB. And the indicators are all overbought. In fact RSI and momentum have already started coming back down, portending lower on Tuesday. At 1:20 AM EDT, we still have a mixed market with NQ up a bit and both ES and YM down. ES is lower by 0.15% and has been trending down since 10:40 PM. today's ES candle formed a gap-up hanging man right on the upper BB suggesting at least the chance of a continued move lower Tuesday.
ES daily pivot: Tonight the pivot moves up from 1333.50 to 1338.50. This gain leaves ES precariously close to the pivot., just a point and a half above. While remaining above is bullish, we need to watch this level for signs of breaking under in the morning.
Dollar index: Today the dollar exited a descending RTC from the first of this month for a bullish setup. Its indicators are also all quite oversold and its stochastic just formed a bullish crossover. Everything seems to be lining up here for a move higher on Tuesday, potentially bad for stocks.
Transportation:Here's another interesting divergence. While the Dow actually lost 0.2% today, the trans jumped nearly 2%, advancing clear to their upper BB. While this tall green candle is not a reversal indicator, the upper BB can be nominal resistance. With overbought indicators now, I have to wonder how much short term upside is left here.
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
17 4/23 30 48 - 1379 14/17
18 4/30 44 32 + 1403 14/18
19 5/7 23 50 - 1350 15/19
20 5/14 32 44 - 1353 16/20
21 5/21 30 52 - 1295 16/21
22 5/29 35 42 - 1318
23 6/4 32 48 - 1278
24 6/11 28 40 - 1326
25 6/18 39 26 - 1343
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 5/21 was wrong, the S&P now being higher than then. I'm using the column "Accuracy" to track my calls. So now I'm 16 for21 . 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 almost half the year gone the poll's accuracy drops back to 76% YTD, still pretty good.
This week we finally got a reversal in sentiment with the bulls outnumbering the bears for the first time since April 30, and by a non-trivial 13 points. This also marked the first time all year that I voted against the majority with a continued bearish call. I'm afraid I just don't see the enthusiams for the 30 day market at this point. The monthyl SPX has just exited a rising RTC, its indicators are all still jsut coming off overbought, and the stochastic just finis I guess we'll see who was right in a month.hed a bearish crossover in April.
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 3 4 1 .625 +52 +$98
And the winner is...
It may be a bit early, but I'm seeing some signs that we've run into some resistance here in the form of several different BB's all at the same time as well as reversal candlestick patterns. The Dow in particular acted especially weak today making me think that we could be in for at least one day of lower prices, so I'll go out on a limb and call for a lower close Tuesday. I'll be buying DOG on the open.
ES Fantasy Trader
Portfolio stats: the account remains at $129,250 after 43 trades (33 wins, 10 losses) starting from $100,000 on 1/1 Tonight we finally enter a new trade, going short at 1338.75.
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-
ReplyDeleteAnother great analysis, along those trademark techno-fundamental lines you’ve evolved. I'm glad you stay with your usual approach, despite the occasional news or rumors which send random ripples through the organic technical patterns. It’s quite a contrarian view, these days, to even engage in regular analysis--as opposed to “Fed Watch” or “Euro-crisis handicapping”.
I liked your description of the Greek election as a “buy the news, sell the news” event. I think that’s what happened. I suspected as much when I heard the press emphasizing over and over and over and over how “there are no pre-election opinion polls by law within two weeks of election”. This caused the contrarian in me to ask, but what if the truth is that there are nothing BUT opinion polls in Greece right now?
And I believe that’s what happened, for several days the leading revenue generating activity in the Greek economy was selling Greek ‘Gallup-polls’ on the black market, to foreign hedge funds, institutions, large private investors, Stratfor.com et. al. I believe readers of the Night Owl daily column were the very last to learn the Greek election results, hearing it on the radio along with the proletariat.
I suspect these election results were probably pretty obvious by about mid-Friday, as the market started to take off; and were fully discounted here in the U.S. market by dinnertime. (Had it been a leak in anticipation of our Fed taking some dramatic actions, the puffpuffpuff upward of air leaking into the balloon would’ve continued into Monday more broadly, instead of the sector-specific action which actually occurred yesterday.)
Lastly, I've heard the word ‘hope’ so many times these past few days regarding the Federal Reserve this Wed that my bullish stomach is becoming a little queasy. The slope of ‘hope’ is usually downward, based on concepts of ‘expectational analysis’.. wherein one tries to analyze the ‘skew’ going in (which CAN be known) as opposed to the outcome (which usually CANNOT be known).. and then tries to handicap which would be the big, bigger, and biggest surprise, and to whom, and with what effect, should it occur.
This has always seemed a fruitful approach to me, as opposed to merely speculating on the results and outcomes, or reading and absorbing some pundit’s speculations thereon. And hearing about all the “hopes” for this and that makes me concerned that there’s a long fall back to the core economic fundamentals--and where the market should be priced based on them--if the Fed does not add anything to the punchbowl. When I'm bullish (as I must be now, for the intermediate-term) I much prefer to hear lots of pessimism on the financial TV, radio, and blogosphere.
May thanks for your well-thought out comment, as usual. "Hope" is one word I try never to use in my posts since as we all know hope is not an investment strategy.
DeleteBut I did get your message in your closing paragraph. It does seem that often when I'm feeling bearish, the market goes against me. But looking back on the charts as they appeared last night, I still have to think there was more downside there than up, which all leaves me wondering exactly what *was* up today.
I guess that given that tomorrow is a Fed day it was a case this time of buy the rumor. Perhaps tomorrow they will sell the news.
Michele, thanks for calling attn to the chart and that huge green candle on the Transport stocks yesterday. You're right, that majestic wide-range force bar is indeed a thing of beauty. In the same day, both the 5-day and 50-day moving averages on the index $TRAN were surpassed. Neither offered much resistance. The close not only touched the upper BB, as you noted, but also instantly lifted the price point out of a protracted consolidation range, to a 21 day HI.
ReplyDeleteThe respected technical analyst and indicator developer Donchian always said, “own anything that has just made a 21 day HI.” I personally like that kind of no-brainer system. Interpretation of it doesn't stress the grey matter, and statistics bear it out. And this sharp move came (as they so often do) out of a NR7 bar, since on Friday $TRAN put in the narrowest daily price range of the previous seven days. This might mean that there’s more upside ahead even in the near term, because eruptions out of resistance, and out of a NR7-bar (indication of a period of hesitation and indecisiveness), often go on a bit longer than one would normally expect, and are what stretch the ATR, the range, of the price action.
Indeed, $TRAN did close right on the upper BB, and indeed some are inclined by nature to harvest any profits there, or to look for a reversal back to the more ‘normative’ mid-band. However, in looking at the prior two daily upper BB touches on $TRAN, we see that in March the price action was able to ‘punch’ the band upward, and it then closed above it for two additional days. In early May the upper band was going completely horizontal, and price merely ‘tagged’ it, but did not have the force to change its slope. This was because the April correction was fairly shallow, unlike the March correction, and this May-June one. So perhaps the ‘leader’ transports will hang up around here and consolidate, for a couple days, as the ‘laggard’ industrials catch up into what is normally a bullish Fed-days period.
You're absolutely right. I was indeed perhaps too hasty in assuming that hitting the upper BB meant a reversal was imminent. Indeed upon further review I found two instance just in the last year when the $TRANS spent six and seven days crawling up the upper BB before peeling off.
ReplyDeleteIn any event, there may well be more upside in store. It will be most interesting to hear what Uncle Ben has to say tomorrow and how the market reacts.
Michele,
ReplyDeleteNever fun to have a loss-making position when you know there's more upside ahead.
I too had a short position established around 4pm yesterday...which I reluctantly had to cover at 1353 since I saw good chances of further upside. The market did make it to 1357 and then cracked and is below the price I covered my short at. Sigh.
However, I still do think we have more upside possible as the action so far has been constructive for bulls. 1347 and 1337 are good support areas and I think we get a temporary pop (at the least to 1360s) even if we are to head down.
Best.
I can certainly sympathize with that. I hate it when I cover a short and then watch the price start sinking right afterwards. Tonight is particularly difficult what with some Fed announcement due on Wednesday.
ReplyDeleteIt's entirely possible we may still have more upside to come - I'm still trying to figure it out.