Thursday, July 26, 2012

Thursday higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday higher, low confidence.
  • ES pivot 1332.08Holding above is bullish.
  • Friday bias higher technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader going long at 1335.00.

Ha - after watching the Dow fall big time for three straight days and seeing no sign of a reversal, I call the market lower and what happens - the Dow goes higher.  Not that I particularly mind since I'm always net long, but still...  At least the SPX and Nasdaq were both down, but my call was for the Dow.  Let's look at the charts to see if the tide may be turning.

Olympic reminder: With the Olympics opening Friday evening, the Night Owl is planning on taking a brief vacation for the duration, my first in over three years of writing this blog every night.

The technicals (daily)

The Dow: Today's small green candle retraced 50% of Tuesday's losses.  More importantly, it canceled the three black crows pattern.  However, it did not take us out of the descending RTC.  On the other hand, RSI has now turned upward and the stochastic is now closer to forming a bullish crossover, though it's still not there yet.  So today's action, though technically mostly positive does not rule out the possibility of another down day on Thursday.

The VIX:  Last night I was thinking that the VIX could go higher today based on a bullish engulfing candle.  Instead, the upper BB exerted its influence and after testing it for the third day in a row, the VIX finally retreated to close down 5.52% at 19.34.  This now gives us a bearish harami.  Note that I'm calling it bearish largely because the VIX is at elevated levels, right up against the upper BB with overbought indicators.  From here I'd say it's more likely that the VIX goes lower Thursday than higher.  The VIX futures have a similar pattern, so that supports this idea.

Market index futures: The futures were mixed as I began writing this post, but are now turning positive.  NQ and YM are both up slightly, while ES has moved out of the red to exactly break-even at 1:16 AM EDT in a trend that began at midnight EDT.  Today's ES candle was a bullish tomahawk ( a hammer with a small upper wick) that snapped a three-day losing streak and canceled the three black crows pattern here like we saw in the Dow.  While that was not enough to cause a bullish RTC setup, the new Wednesday evening candle is trading outside the RTC and that's the bullish setup.  Also, the stochastic is now very close to forming a bullish crossover - could happen Thursday.  I am now much more optimistic about this chart than I was Tuesday night.

ES daily pivot: Tonight the pivot ticks down from 1333.25  to 1332.08, the smallest drop in several days.After threading about the old value on Wednesday evening, ES has apparently decided to start moving above the new level as I write this, a positive sign.

Dollar index: With no technical warning, the dollar ($USDUPX) dropped 0.6% today for a gap-down inverted hammer that caused a top in RSI and left the stochastic near a bearish crossover.  The loss was enough to take us outside the latest rising RTC for a bearish setup too.  Everything's in agreement here for a lower dollar on Thursday, which would help stocks.

Euro: Meanwhile the euro had a big gain today that completely erased its losses of the last two days, cementing its support at 1.207.  And, mirroring the dollar, this gain took us outside the descending RTC for a bullish setup.  And after declining in Wednesday evening trade, the euro took a sudden change of course to begin moving higher at the stroke of midnight Eastern, like the market futures.  I'm not sure what the cause is, although there's been renewed QE chatter lately that might be helping out here.

Transportation: While the Dow was up a bit today, the trans were down again for the fourth straight day.  However, today's loss was the smallest, just 0.39% to form a clear doji right on the lower BB with oversold indicators and a stochastic setting up for a bullish crossover.  This now gives us a potential reversal sign, though it requires confirmation on Thursday.  In any event, I'd not be shorting the trans from here right now.

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   10      1      5           1        .917     779

     And the winner is...

It now appears that the most recent slide in the market may be broken.  There are now definite signs of a reversal on many of the charts I follow.  So barring some new overnight calamity out of Europe or really horrible jobs numbers, I'm going to call Thursday higher.

ES Fantasy Trader

Portfolio stats: with no new trade entered last night again, the account remains at $168,750 after 52 trades (41 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we are going long at 1335.00.  I think we're now close enough to a turning point to make a reasonable entry here, although a more conservative approach would be to actually wait for evidence that the bottom is in.  Still, I believe that if this trade is not profitable on Thursday, it will be on Friday.  Reminder - these trades are posted 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.  Act accordingly.


  1. VERY nice trade. Way to go contrarian to general sentiment out there AND time it so perfectly.

    It almost seemed like Ms NightOwl had a private hoot from Mario Draghi well in advance! ;-)


  2. Aw shucks - I'm blushing. Thanks! I'll admit to being a bit nervous taking on that trade but sometimes my best trades happen that way. It helped that the longer (ie. two day) outlook seemed positive, thus helping me recover had my initial guess been wrong.

    And I categorically deny having Uncle Mario's private cell phone number. Mama mia - è impossibile. That's my story and I'm sticking with it. Heh heh.


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