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- Monday lower, low confidence.
- ES pivot 1344.00. Holding above is bullish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias down.
- ES Fantasy Trader standing aside.
Wow - what a way to end the day, the week, the month, the quarter, and the first half all rolled into one. The bulls bellowed and snorted their way to a 228 point romp for the Dow and sent everyone off for the weekend in a good mood. With a holiday-shortened week ahead, things might get interesting. Maybe there's a clue in the charts so let's take a look.
The technicals
The Dow: Friday's king-size 2.2% pop was important in several ways. First, it was the pay-off for the bullish trigger we got last Thursday as the Dow exited its last descending RTC. Second, the close at 12,880 totally retraced that entire decline and even cracked the resistance formed by the June highs. Third, the move was on the highest volume in five sessions, and much more than the last two times the Dow lost ground. And finally the bullish stochastic crossover is now complete and the indicators are beginning their move up from oversold. All of these developements are positive. And the next resistance isn't until 12,967, the upper BB, so there's still some room to run.
The VIX: Market up, VIX down. No surprise there. But what's interesting is that unlike the Dow and ES which formed tall green Marubozus, the VIX produced a tall inverted hammer on Friday. I'm thinking this may be a bad data point in eSignal, which shows a sudden spike in a single bar at 4 PM to 19.71, while the adjacent bars were i the low 17's. Editing that out gives us a smaller gap-down inverted hammer. Either way, the air literally rushed out of the VIX like a popped balloon on Friday at the open as its stochastic completed a bearish crossover.
Though the inverted hammer suggests a possible reversal, that would require confirmation, and the futures don't support that idea. The last time we saw a VIX gap-down of this magnitude was last November 29th, and the next day the VIX continued a bit lower. With a close at 17.08, we note that the lower BB is at 15.98 and we know how the VIX loves to play tag with the lower BB before reversing. I think there's sill a bit of downside left in thes chart and that would be good for stocks.
Market index futures: Tonight all three futures are running lower at 1:15 AM EDT with ES down 0.18%. The pattern of the decline is interesting. After actually opening slightly higher and then continuing from there, ost of the fall happenedjust before 8 PM. I think this may have been on the Chinese June PMI numbers. But after quickly giving up six points, ES stabilized and has been essentially flat since 8:30 PM. While it's discouraging to see the futures in the red, I'm not certain this particular movement is indicative of a lower close Monday.
On the daily chart, we note that ES handily cleared its June resistance of 1350, now becoming support. And Friday's close of 1356 still leaves a bit of wiggle room as the next resistance is the upper BB at 1363. But with the indicators just now entering overbought territory, I think any further gains from here may be limited, particularly in view of Friday's massive advance.
ES daily pivot: Tonight the pivot jumps from 1319.00 to 1344.00 even. We're still a good 10 points above the new level even with the decline in ES so far, but we'll want to watch this. While ES appears to have found support around 1353, a continued move lower would be worrisome.
Dollar index: Like the VIX, on Friday the dollar took a massive dump, shedding 1.51% to just tocuh its lower BB before recovering slightly and making a small hammer, suggesting a possible reversal. However, the indicators are all still just now coming off overbought and that suggests more downside. Friday's plunge also took the dollar out of its latest rising RTC for a big bearish setup. On the other hand, in the overnight, the euro is running lower, as might be expected following its huge gains on Friday. So lower euro -> higher dollar -> lower stocks.
Transportation: The daily trans chart looked a lot like the Dow only more so. Where the Dow gained 2.2%, the trans were up 2.84% on Friday. Here we have the same bullish RTC exit and the same indicators all clearly having bottomed now. If anything, the indicators are still closer to the bottom than in the Dow, indicating more room to run. Resistance here is at 5265 which is both the upper BB and the June highs.
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 0 0 0 0
Note: Beginning this month, I will no longer be updating the "trade" column. The results there are directly correlated to the Dow points column so there is no value-added and it's just more work for me to keep track of and post those numbers. One can assume that if you were to trade the DIA/DOG pair based on my daily calls, you'd make money as long as my "Dow points" column is positive.
And the winner is...
Holiday weeks are always dicey to call. And the fact that the holiday this week falls smack in the middle makes it doubly difficult. And the shorted trading day on Tuesday doesn't help either. I'm sure the byg wygs are already boarding their yachts for the Hamptons or their Hawkers to jet up to Maine for a quick vacation. This always leaves the markets prone to odd gyrations. Modulo that, tonight we have some vaguely positive chart action tempered by futures moving lower. That's not really at odds with the typical thing following really big one-day moves up which is a small down day, so that's what I'm calling for Monday.
ES Fantasy Trader
Portfolio stats: the account begins the second half of the year at $140,375 after 48 trades (37 wins, 11 losses) starting from $100,000 on 1/1 Tonight we stand asidesince I don't really see a decent edge worth playing. Reminder: you can track these trades live on Twitter @nightowltrader.
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
In perfect mirror image to your post at 2:00am, here is a post regarding 2pm.
ReplyDelete.2pm note: iyt very hi-volume down day; already 1.5 3-mo avg vol, at 2pm, per Schwab.
Ja ja, I was just hearing some talking head on CNBC commenting about that very subject. Interesting.
ReplyDeleteYour mind is a beautiful thing. I predicted the same thing (small correction today, on lower volume). I am not calling dibs on tomorrow, for as you said, things will be strange. Thursday should find renewed vigor, maybe not in the morning hours but it will pick up, and I feel like the markets with the holiday having left good positive vibes, and with a continued sense of "more stability" in the world market with the euro news, that we will be on at least a short term uptrend for a few.
ReplyDeleteWell that's entirely possible. Technically at least though, it's looking to me like we could be in for a day or two of retracement of last Friday's big gains. A lot of things are starting to look overbought.
DeleteLet's see how the pin action shakes out Tuesday and what the overseas markets do on Wednesday. Thanks for the comment.
Not more than 5 minutes after I posted that observation about the Transports (and the ETF, IYR) the Nasdaq Trans Index took off in a strong reversal, and shortly thereafter the Dow Transports as well. Both rallied strong into the close, as did many sectors of the market.
ReplyDeleteWhat was of particular interest to me, Michele, was that the weakness in the transports was coming on a day in which Oil ETFs like USO (as well as the underlying crude price) were also sharply down on the day. Looking at the death spiraling of the share prices of Ford and GM makes me wonder what is spooking the section of the economy that rolls on wheels.
Yes, that was something of a puzzler. I'm not sure how much to read into it given the odd nature of this entire week, chopped in two parts as it is by the holiday.
DeleteThe F & GM losses are probably due to the same old fears over Europe, don't you think? Not quite sure what to make of the drop in oil either. You'd think with the latest Iran sanction business oil would be up. Then there's always the classic question of whether a drop in oil is good because it gives cash back to consumers or bad because it signals decreasing demand.
At times like this I like to concentrate more on the chart patterns than trying to play chess with the market.
Right now, there are dojis aplenty so continued upside is possible but not guaranteed. We need to wait a day or two to see how things sort out. I'll be lounging in my back yard catching some rays and sipping a cold beer.
Michele,
ReplyDeleteWhat no champagne after your stellar performance of the first half of 2012???
LOL - I've arranged a little fireworks display all across the country tomorrow to celebrate :-)
DeleteThe downside of course is that now I get to worry about how to avoid giving it all back in the second half.