Tuesday uncertain

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Tuesday uncertain.
• ES pivot (switching to the "U" contract)  1314.00.  Holding below is bearish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

Well that had to be the World's Shortest Rally.  If you blinked, you missed it.  After some overnight gains last night in the futures suggesting a big move up today we got just that - once again for all of 90 seconds.  This open was pretty much a carbon copy of last Thursday.  Only this time all the gains evaporated and then turned very ugly to end with a 143 point loss.  All because, um, well, who really knows why.  Just as last night's big jump up was overdone, I think so was today's dive.

What's strange is that the VIX is still in the low 20's, but the market is behaving more like it's in the low 40's.  With all this herky-jerky action motivated mainly by random news items and rumors from Europe, technical analysis pretty much falls by the wayside.  So as alert reader Daniel suggested in a comment this evening, tonight we're going to move out to the weekly charts to see if we can filter out some of this random noise and nonsense.  Even that may not be much help, but since I don't happen to have Angela Merkel's unlisted cell phone number it's going to have to do.

The technicals

The Dow: It really is pointless to look at the daily charts tonight.  Today's oddball move completely confused the indicators and they're temporarily unreliable.  So instead we look at the weekly chart, including only up to last week (the last fully formed candle).  And here we see, somewhat surprisingly, a nice bullish engulfing pattern.  In addition, last week's close was just outside the descending weekly RTC for a bullish setup.  If this week can close above 12,358, we'll have a bullish trigger.

The VIX:  Part of the market confusion is evident in the weekly VIX.  After a doji the week of 5/7, we got four consecutive weeks of big up-down-up-down moves that left us exactly where we started on 5/14.  Of particular interest though is that all four weeks played through the upper BB.  Just as it is unusual for the VIX to spend more than a day or two at its upper daily BB, it's very unusual to find it spending more than two weeks at the upper weekly BB.  The last time we saw this was last summer during the same old European soap opera.  Then we spent five weeks at the upper BB from July through August before moving lower.

And today's VIX action seems to play into this because even with today's 11% pop, we're now well below the weekly BB and only to the middle of the range of the past month.

ES weekly

Market index futures: Before looking at the weekly chart here, I'll just note that right now at 1:25 AM EDT, all three futures are higher by identical 0.35% margins.  OK, now look at the weekly chart.  I see, holy moly, another megaphone!  Such an unusual pattern and this is now the second one in two weeks?  I mentioned the first one in this post on May 31st.  It was in the Dow and if you look at that chart it looks an awful lot like this one.  And we all know how that one ended - badly, with the Dow tanking on June 1st.

Anyway, this pattern is so rare, I don't have a lot of experience with it.  It is possible that this is a bullish megaphone.  There was a situation like this with the weekly VIX in the second half of 2009 and it resolved lower.  Or this one could be bearish like the Dow at the end of May.  One thing's for sure - there is a lot of instability in the market and it's increasing.  This pattern suggests a big break is coming soon.  Best I can tell, if ES ends the week around 1258, look for a big break lower next week.  If we can move above today's open at 1337, look for a move higher.  I guess it all depends on what kind of news comes out of Europe this week.  Perhaps the Greek elections will provide the catalyst?

And now that I look at it, there's another megaphone developing in the daily VIX too!

ES daily pivot: Tonight the pivot ticks down from 1314.58 to 1314.00 (reminder - tonight we're switching to the "U" contract).  Despite ES's overnight gains so far, we're still below this, a negative sign.

Dollar index: The dollar finally traded out of its rising weekly RTC from 4./30 last week for a bearish setup.  The action so far today suggests the bearish trigger is coming.  However, with the dollar decoupling its relationship to stocks lately, I'm not sure one can read too much into a lower dollar.  The dollar/euro relationship is probably the most politically influenced of all the charts anyway.

Transportation: The last four weeks of trans looks just like the VIX in reverse - down-up-down-up.  The interesting thing here is that the trans have been putting in higher lows.  With a resistance line around 5080, this give us an ascending triangle which would be a bullish reversal to the downturn that began the week of 4/30.  Today's action fits into this pattern.

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      1           0            .667        +77   +$66
     And the winner is...

Well that's the weekly chart analysis.  And what did we learn, class?  Um, not a whole heck of a lot, I'm afraid.  A hint of positive signs and a big warning sign.  These periods of increasing instability tend not to end well and my personal feeling right now is that we may be in for a lot lower in a week or so, but officially, the current environment is far too difficult to make a daily call on a technical basis, so we'll just leave it at that - Tuesday uncertain.  But I'd be paying close attention and be ready for a big move coming sometime this week.

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  No trade again 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.