Wednesday, June 6, 2012

Wednesday higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday higher, medium confidence.
  • ES pivot 1279.75.  Holding above is bullish..
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader goes long at 1288.50..

Yesterday's turnaround clues paid off today as all three major averages moved higher.  I've given up trying to understand if this move was somehow related to Europe or not.  I'd rather just look at the charts, so let's do it again tonight.

One note of a new feature here.  I've been asked more than once what good my daily calls are and how they could be monetized.  So beginning today, I'm now trading the Dow ETF's based on these calls and posting the results in my "Accuracy" section.  See the details below.

The technicals

The Dow: Today's 26 point gain was good for a fat little doji, the second in two days.  This does indicate support of sorts around 12,100.  And it carried us very nearly to the edge of the latest steep descending RTC.  More action like this on Wednesday will give us a bullish setup, reinforced by a stochastic that's closing in on a bullish crossover.  Even better, today's candle formed a bullish engulfing pattern, which is high reliability.  I'm liking this chart.

The VIX:  There was more encouraging news from the VIX today which not only dropped 5.5% but did it on a solid red candle that cut right back down through the 200 day MA, negating any support it might have provided.  With indicators that remain quite overbought, I'd say there's still room to run lower here which would be good for stocks.

Market index futures: At 1:36 AM EDT, all three futures are in the green with ES up 0.58%.  Today's green candle brought ES right back up over its 200 day MA, canceling the threat everyone was so worried about on Friday.  And the follow-through in the overnight so far is quite encouraging.  And finally, the stochastic has now completed a nice-looking bullish crossover along with the rest of the indicators just coming off oversold.  Technically, this chart looks a lot healthier than just two days ago.

ES daily pivot: Tonight the pivot rises from 1272.17 to 1279.75.  We remain comfortably above the new level, so that's a positive sign.

Dollar index: The dollar continued its decoupling today, gaining 0.3% on a day when the major averages were also up.  This is the third time I've noticed this recently, so I'm going to decrease the importance I attach to this chart in forming my market opinions until I either see the dollar resume its inverse correlation to stocks or establish a solid positive correlation.

Transportation: After two nasty down days, the trans today finally managed to score a decent 0.43% gain on a spinning top.  But that's not a particularly good reversal indicator and they're still stuck in the descending RTC.  At least the recent pullback has brought us to oversold levels, so a turnaround may be coming in the next few days here.

History: According to The Stock Traders Almanac, Thursday is historically bearish.

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    3      0      0           0           1.000        +26   +$47

Starting today, there are two new columns  in this section.  "Points" means how many Dow points I captured with my call.  If the Dow is up 10 points and I called for a higher close, this column would get a +10, and the "right" column would get a +1.  The "trade" column represents how the call would play out in actual trading.  Every day, I take on a 100 share long position with a MOO (Market On Open) order for DIA, the Dow long ETF, if I'm calling for a higher close.

If I'm calling for a lower close, I open a long position in DOG, the Dow short ETF.  All positions are closed when the market closes at 4 PM with a MOC (Market On Close) order.  The resulting P/L is added to the "trade" column.  If I don't make a call for a given day, then obviously I make no trade here.  I think this is the fairest way to do it (actually it was the only way I could think of doing it).

     And the winner is...

Last night I called for a higher market based on the possibility of a reversal.  Tonight, we have more evidence favoring a continuation of the action that started today so I'm going to call for a higher close Wednesday.

ES Fantasy Trader

Today we didn't get quite the move I was expecting, but it's always nice to take a profit even if it's only 1.75 points.

Portfolio stats: the account goes to $134,875 after 41 trades (32 wins, 9 losses) starting from $100,000 on 1/1.  Tonight we go long at 1288.50 on another early evening entry.  One of the things about trading is that when markets change or patterns change, you have to be ready react and change with them.

SLD    10    ES    false    JUN12 Futures     1278.25    USD    GLOBEX    11:01:14   
BOT    10    ES    false    JUN12 Futures     1276.50    USD    GLOBEX    JUN 4 20:05:19 

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.


  1. Umm. Going long at 1288.50 mademoiselle. Good call last night. Hopefully this trade works out too!

    1. Thanks, anon. We'll just let this one cook for a while and see if we can't serve up some profits by morning. So far so good...

    2. Oh sorry, I meant to indicate that you had the entry price incorrectly as 1276.50. We never traded down to that level this evening :)

      I am flat futures, just long via ETFs. I think the short-term target is ES 1298 and then 1305. Then we taken another peek perhaps 1245 ES.

    3. Oops! Good catch. I somehow typed in the entry from the previous trade there. Anyway, I've corrected it now.

      The prices in the real-time Twitter feed were correct though. Thanks for pointing it out.

  2. Very good analysis. I am following the SPX lower indicators RSI, StochasticSlow, and MACD on the daily chart. Both RSI and StochasticSlow gave good buy signals today and the MACD could confirm a buy signal tommorow as well.

    Since we don't know what the big news titles will be its best to refer to the charts. I need to start analyzing the DOW and VIX as you do for full well rounded understanding.

    Thanks for the analysis daily.

    1. Thanks for the kind words. The indicators I use are my "Fave Five": RSI, momentum, money flow, stochastic (fast), and OBV. I used to use MACD but I find that the stochastic does a better job.

      I would definitely recommend any trader pay close attention to the VIX. The VIX has more predictive power than I think most people realize.

  3. Thank you for responding.

    So, you use the money flow index, correct?

    I am learning to use the money flow index as well.

  4. Yes, that's the one. There's a good intro to money flow here:

  5. Thank you.

    Do you use esignal along with your technical analysis?


    1. Yes. Esignal is my primary chart provider. All the charts I publish in the blog come from there. I like it because it's super-fast, easy to use, ultra-reliable, and quite comprehensive.

      The downside is that it's also quite expensive. But when you consider who you're playing against in this game, you really want to have the best tools you can get.

  6. Thanks, Good to see you use them, I visit there website yesterday and any edge we can get in trading is a hugh plus. And yes, there are some heavy money in this game.

    I currently use Thinkorswim as my charting platform. Still learning my technical analysis. I will give Esignal some further reading over the weekend.


    1. Yep, ThinkorSwim is highly regarded too. A lot of traders also use Tradestation. For me, at this point I'm just used to eSignal and not really up for learning a whole new system.


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