Wednesday, June 20, 2012

Wednesday uncertain

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday uncertain.
  • ES pivot 1348.00.  Breaking under is bearish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader standing aside.

Well I'm sure glad I only said that Tuesday was a "maybe lower" last night because it ended up being clearly higher to the tune of 96 Dow points.  I'm now putting in the "trend up" arrow although technically we're still not quite there yet because the Dow has not put in three consecutive up days yet.  But the overall trend of the past six sessions is clearly up.  Now we're at an important junction.  We'll run down the charts because that's what I do, but I'm already thinking that tomorrow's close will be determined more by what Uncle Ben has to say than what the technicals look like.

The technicals

The Dow: Yesterday the Dow gave us a hanging man.  Today proved why this candle always requires confirmation to be a reversal sign.  We didn't get it of course and in fact got a bullish engulfing pattern instead and that keeps us solidly inside the rising RTC and points the way higher, overbought indicators notwithstanding.  And as an alert reader commented yesterday, just hitting the upper BB is no guarantee of a reversal either.  And in fact there were two instances last year where the Dow went six and then seven sessions in a row crawling up the upper BB before finally peeling away.  We might be starting one of these "wall of worry" rallies here.

The VIX:  And on the other end of the BB's, the VIX bumped down its lower BB for the second day in a row, ending the session up 0.33% but still comfortably below 20 at 18.38.  However, the VIX is pretty good about bouncing off its lower BB.  That would indicate a higher VIX, I'd like to say tomorrow, but let's be cautious and just say later this week.

Market index futures: Like the Dow, yesterday's ES hanging man was invalidated by today's big gain, and the bullish engulfing pattern predicts more upside possible Wednesday.  The indicators are not reliable at the moment.  And at 1:27 AM EDT, we have another mixed session, with NQ up a bit but both ES and YM lower.  ES is down 0.07% - nothing of great significance here.

ES daily pivot: tonight the ES pivot vaults from 1338.58 to 1348.00.  With ES wandering lower from its earlier highs this evening, this now puts it right on the pivot.  We could go either way from here.

Dollar index: The inverse dollar/stock correlation is back on with the dollar taking a big 0.77% dump today to remain solidly inside a descending RTC.  No sign of a reversal here either so we have to assume continued lower on Wednesday.

Transportation: The big gain in the trans yesterday was the real clue to today's action - too bad I saw it but didn't grasp it.  Anyway, with another green candle and another 1.13% up today, the trans have just been on a tear the past four days, closing at 5251.  There's no resistance until 5340 and we didn't bounce off this upper BB either, so there might just be more upside left here.

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      4      4           1            .500        -44   +$89

     And the winner is...

Well the charts have mostly taken a turn for the positive today, with the exception of the VIX which looks ready to move higher, which would mean lower stocks.  But it's really all moot because I think tomorrow's outcome will be determined by whatever the Fed has to say.  And that could go either way.  With the recent run-up apparently pricing in good news, we might very well get a classic "buy the rumor, sell the news" day.  But if Uncle Ben makes an unexpected move the market likes, we could get further gains.  The charts are not quite at any important resistance levels yet.  So against that background, I hope you'll forgive me if I take a pass on this one and simply call Wednesday uncertain.

If I had to take a wild guess, I'd vote for a higher close simply on the basis of the TLT, which today  turned decidedly lower, breaking a four day winning streak.

ES Fantasy Trader

Ugh - I'm throwing in the towel and covering this short at 1349 for a disappointing 10.25 loss.  There's just too much risk of an upside surprise on Wednesday to hold onto this one any longer.  If we do close lower, I'll just go out in the back yard and bang my head against a tree.

Portfolio stats: the account drops to $124,125 after 44 trades (33 wins, 11 losses) starting from $100,000 on 1/1  Tonight we stand aside ahead of Fed news.

BOT    10    ES    false    SEP12 Futures     1349.00    USD    GLOBEX    01:06:13    
SLD    10    ES    false    SEP12 Futures     1338.75    USD    GLOBEX    JUN 19 01:12:30   

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. Michele-

    Never bang your head against a tree or anything else for that matter, you might damage your precious analytical ability in the process.

    If the Night Owl needs to throw off some of the frustration which arises in this difficult business, please find some other outlet, like perhaps finding a smaller bird and tearing it to pieces.

    btw, in my comment last night I was not specifically referring to the use of the word 'HOPE' in your update, but just ambiently on the financial radio, and in blog articles. Hope creates a 'vacuum' below, should such hope be dashed.

    Also, as a contrarian, I'm always on the lookout for my forming 'assumptions'. That's the best definition of 'contrarian', not so much 'opposite' as 'questioning, skeptical, anti-assumption'. And a big question mark I am keeping in front of me is the ASSUMPTION that the recent stock price run up is due to Europe or Fed Watch.

    It could in fact be due to the market getting a whiff of stronger economic activity in the autumn, and the 'big boys' (and girls) are using all the attention on Europe as their cover for doing what they do.

    Not saying this is the case. Just saying that we never ever fully know WHY the market is moving, just THAT it is moving.

    Last year was a great example. Remember all the brouhaha about the SP downgrade of US Treasury debt? So much market movement was attributed to THAT... and it made no difference at all. And only later, looking back, did we realize it was really the market discounting autumn economic weakness. The big bugaboo booga booga fear headlines were just the cover for the big money's repositioning.

    Then, when the plebes got wind of economic weakness, the big boys bought back their shares in October.

    So I always hold back some reserve doubt as to what is 'causing' any market move... although there's no harm in thinking about it. The danger is in concluding anything concrete.

    So it may be that the Fed does nothing, Europe grinds on, and we still continue to go up because the real impetus for the advance is not coming from those domains.

    That's why I'm so affirming of your continuing to do the basic analysis, because clues CANNOT escape being noticed when we do that. It's only when we allow ourselves to be convinced that "it doesn't matter that MACD has crossed over to the upside everywhere on planet Earth, all that matters is some election in Greece" that we can be snookered.

    Lastly, in your reply comment last night you wrote "May thanks to Daniel..."

    No June thanks? Sigh. OK, I'll tough it out, wait patiently, maybe there will be July thanks.


  2. Yes, the Night Owl tries hard never to assume anything. Because as the late great Benny Hill said, "When you assume, you make an ASS out of U and ME".

    But I think you're supporting my basic premise that it doesn't really matter why a market goes up or down as long as you're on the right side. That's why I don't go into a lot of commentary about fundamentals. I think all the politics and so forth end up getting reflected in the charts anyway, so why not just look at them and be done with it.

    "No June thanks?"

    LOL - I'd blame it on relying on the spell checker since "may" is also a word, but Blogspot doesn't spell-check comments. So let's just say my keyboard has a sticky "n" key and be doe with it :-)

  3. Michele-

    I've been hearing on the financial news radio that China has probably engineered a “soft landing” in their efforts to cool but not collapse a previously overheated economy. Yet tonight I see the Shanghai Composite falling away from yet another attempt to cross the multi-year resistance band around 2300.

    And yesterday I saw $Copper (which has variable levels of positive correlation with China), close well below its 50day Simple MA, which is severely downsloping.

    Contrast this to the DIA, celebrating it’s fourth close over its 50 SMA; the SPY (3 closes above); and even the struggling smallcaps ETF, IWM (2 closes above).

    With the World’s #2 economy giving off such clear signals of distress, (based on simple chart analysis, rather than some pundit’s opinion or worse yet my own), my short term ‘technical bullishness’ over this recent broad upmove on the major US market indexes--from that “first test” of an upsloping 200 SMA--is definitely tempered and restrained by longer term concerns.

    It's been a long time since investors have seen real solid rotational world market growth, where the baton goes from Latin America to Europe to China to the US to the Pacific Tigers, each heating up and cooling off on slightly different cycles.

    At the June 4 LOW several longer-term OB/OS oscillators hit their most negative levels since last November. That kind of ‘slingshot’ effect, as the market has been coming back up, could cause a bona fide ‘summer rally’ and carry us to a July HI, as has happened on occasion in the past, especially in election years (according to Stock Traders Almanac).

    But until somewhere--in one of the major growth engines--the leading indicators start to show sustained ‘organic’ (ie not just stimulated) economic growth, it’s impossible for me to see this broad up movement as more than a bounce within a range, destined to get to about Yay, over thereabouts... and then roll back over.

    And, btw, I’ve made a place in my memory for that superb ‘pneumonic device’ (aka ‘memory aid’) you learned from Benny Hill and shared with readers in your comment above..

    "When you assume, you make an ASS out of U and ME".

    LOL. That is priceless and supremely easy to remember. I shall not forget it. Assumptions are the bane of the thinking classes. Making an assumption is always the potential beginning of the process of “garbage in garbage out”.

    1. Indeed. I generally have a problem believing any numbers from the Chicoms. China, after all, is the country that recently demanded that the US stop posting air quality measurements online from their embassy in Peking because they showed the air to be something like sitting in a closed parking garage full of idling dump trucks.

      The Chinese said their own measuring equipment indicated that the air was just dandy keen. And we're supposed to believe their financial numbers? Now the scary part is that if the Chinese are putting up bad PMI numbers, imagine how bad they must really be.

      I have enough trouble figuring out where the market's going tomorrow, but right nwo my reading of the monthly SPX chart indicates that we're in for at least one more month of downside. I'm afraid I'm not seeing hte bullish case here. I'll address this some more in tonight's post.

      Thanks again for taking the time to post your illuminating comments.


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