Friday, July 27, 2012

Friday uncertain

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Friday uncertain.
  • ES pivot 1347.08Holding above is bullish.
  • Next week bias higher technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader standing aside.

Well I was expecting a reversal today or Friday, but I wasn't expecting a 200 point plus skyrocket.  It was another of those days where all the excitement was over in the first four minutes after the starting gun went off.  After that, we sagged a little, but then recovered to finish the day up a hefty 212 points on the Dow, retracing most of the losses from our last big three day losing streak.  Of course, big up days like this always make me nervous.  Is there more in store or was this a one-off?  We pick out way through the charts like Diogenes for an answer.

The technicals (daily)

The Dow: Today's supersized green candle took the Dow out of its descending RTC with a bang for a bullish trigger.  It also finally executed the bullish crossover on the stochastic I've been waiting for.  The only caveat is that volume was a bit below normal, causing some to question whether this rally is "real" or not.  Skip to the end for my take on this.

The VIX:  Last night I wrote "it's more likely that the VIX goes lower Thursday than higher".  And so it did, down a whopping 9.36% to form a classic doji.  While that only reflects indecision, I note that the stochastic today just managed to eke out a bearish crossover, so there's definitely more downside possible on Friday.

Market index futures: Tonight all three futures are running higher at 1:05 AM EDT with ES up 0.22%.  Today's outsized green candle sent ES clear out of its descending RTC for a bullish trigger.  And the stochastic bullish crossover is now complete so even after today's big advance, this chart is still in good shape.  The fact that we're seeing some positive follow-through even after today's gains is a good sign too.

ES daily pivot: Tonight the pivot jumps from 1332.08  to 1347.08.  With ES running a bit higher in the overnight, that still leaves us above the new number, but only by half as much.  Nonetheless, this remains a positive sign for Friday.

Dollar index: Last night I wrote "Everything's in agreement here for a lower dollar on Thursday, which would help stocks."  Well turns out it was and it did, with the dollar dropping a giant 0.93% for a gap-down doji.  The indicators are all now off overbought and the  stochastic bearish crossover is complete.  My only concern now is that big gaps like this tend to want filling, especially when they end in a doji.  So the indicators notwithstanding, I'll have to be cautious about expecting further dollar downside on Friday.  We're going to want some confirmation first.

Euro: And the euro clearly benefited greatly from Super Mario's comments in the news, ending the day at 1.2293, right back to its mid-month resistance line.  With a solid green candle today and rising indicators, there's nothing on this chart suggesting a reversal.  However, we are at a resistance line, so Friday's going to be all about whether the euro's upward momentum is enough to overcome this level.  This will be interesting, given that the movement of the euro is so highly influenced by politics.

Transportation: Today the trans were pretty much in line with the Dow.  Same bullish RTC exit, same bullish stochastic crossover.  And all the indicators have now turned upward from oversold levels, always a good sign that the bottom is in.  The trans are pretty clearly telegraphing that the recent slide is over.

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points trade

April   7      9      2                    .438
May    10      7      3           2        .632
June    8      6      6           1        .600     632   +$330
July   11      1      5           1        .923     981

     And the winner is...

Just as the market often exaggerates the downside, it often overdoes it to the plus side.  I think Thursday was one of those days.  And I'll note again that the recurring pattern this year has been for big up days to be followed by either a doji day or a small loss as the market digests the gains.  We are also now back close to the resistance line at 12,950 that stopped the market on its last two attempts to cross it earlier this month.  One thing that bears watching though is that this time, we are a lot further from overbought than the lat two times the market was gearing up for the assault on 12,950.  But it's not clear that the attempt will come on Friday.

So even though the charts are all looking quite bullish right now, I'm not convinced that Friday will be a positive day although my expectations are for more gains to follow early next week.  But since I'm expecting a doji on Friday, it's hard to call the close either higher or lower, so I'll simply state that Friday's close is uncertain.  My guess, but this is only a guess, is that with such a big open gap the market may well sag into it a bit as traders lock in some profits and head to the sidelines for the weekend.

ES Fantasy Trader

I was reasonably confident that we'd turn a profit today with last night's long trade and so it was, to the tune of 14.5 points.  Then when I tried to post the trade to Twitter shortly after noon, I was greeted with a "sorry, we're down" screen.  But as luck would have it, ES had moved even higher by the time Twitter came back online, so no harm done.

Portfolio stats:  the account now rises to $176,000 even after 53 trades (42 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we are standing aside, given my expectations of little market movement on Friday.  Remember, nothing ventured, nothing lost.

Reminder - these trades are posted live on Twitter @nightowltrader (when Twitter isn't down that is).

SLD    10    ES    false    SEP12 Futures     1349.50    USD    GLOBEX    12:31:24
BOT    10    ES    false    SEP12 Futures     1335.00    USD    GLOBEX    01:24:02    

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.  Act accordingly.

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