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- Thursday uncertain.
- ES pivot 1335.50. Holding below is bearish..
- Friday bias higher technically.
- Monthly outlook: bias down.
- ES Fantasy Trader standing aside.
Well it was more of a hammer than a doji as I was expecting, but it was still a fairly benign day with just a 49 point loss for the Dow following the big non-sequitur of the Fed minutes. Still, this moved the market in some interesting ways, as the following charts show.
The technicals
The Dow: Today's close at 12,605 left us just on the right-hand edge of the descending RTC - good enough for a bullish setup in my book. It also drove the indicators to oversold levels, finally. RSI in particular hit17.2 today. The stochastic meanwhile began flattening out and is now in the position where I'd expect a bullish crossover in the next day or two. In general this chart is looking like there may finally be a chance of an up day after five straight losing sessions.
The VIX: Tellingly, while the Dow was down 0.38% today, the VIX also fell, by 4.11%. Yesterday's bullish engulfing pattern did not pan out and the indicators rose almost to overbought, even with this loss. The gravestone doji we got is not the mark of a chart that wants to move higher, and that would be good for stocks. But it still requires confirmation on Thursday, so we don't want to read too much into this.
Market index futures: Tonight once again the futures have resumed their downward march, with ES losing another 0.3% at 1:43 AM EDT. ES gave us a spindly spinning top today that traded outside the descending RTC for a bullish trigger. However, the overnight action isn't exactly following through. Nevertheless, ES is now at oversold levels and the stochastic is now positioned to start a bullish crossover as early as Thursday. And yet, from the current candlestick pattern, this isn't a reversal. Until I see some upward motion, I'm reluctant to call a bottom.
ES daily pivot: Tonight the pivots drops from 1340.83 to 1335.50. Since ES has been falling since 8 PM, even with this fall we remain below the new pivot - a bearish sign.
Dollar index: Last night I wrote " there's still a bit more room to run higher" and that' just what the dollar did today, tacking on an additional 0.2% However, the dollar has now been playing tag with the upper BB for three days now, the RSI is very overbought, and the stochastic is just a hair away from a bearish crossover. I'd say this chart is now finally ready to roll over, if not tomorrow, then on Friday.
Transportation: The trans dropped another 0.22% today but that was enough to drive them to oversold levels on a spinning top. With RSI at 22 now, we've got at least a glimmer of a bullish turn-around coming soon. We'll now watch the stochastic for a bullish crossover, possibly by Friday.
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 5 0 1 0 1.000 299
And the winner is...
Here we've got another tough night going on. I believe we are now at least near the end of the current sell-off and starting to be due for a rally. But it's hard to say if it will happen on Thursday. I'm seeing some positive signs, like toppiness in the TLT, the euro seeming to find some stability after a long decline, and copper nearing a bullish crossover, but it hasn't happened yet. If I had to guess, and this is only a guess, I'd say that tomorrow might be a turn-around day. If we do close lower Thursday, then I'm more encouraged about Friday going higher. So I'm going to look for something of a spinning top sort of day, and I can't really call that one way or the other in any meaningful way. And that all simply makes Thursday uncertain.
ES Fantasy Trader
I think we were correct to stand aside last night as there was very little action ahead of the Fed minutes today and no way to predict the reaction once they came out. Nothing ventured, nothing lost, as I say.
Portfolio stats: the account remains at $153,375 after 50 trades (39 wins, 11 losses) starting from $100,000 on 1/1/12. Tonight we stand aside once again in view of the possibility that we may be close to a short term bottom. We don't want to risk getting on the bus just as it's changing direction. Follow 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.
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Another superb analysis, Michele. For the ultra short term investor (intraday, short-swing) there really are three positions: long, cash, and short. I believe the middle position is often underrated.
ReplyDeleteI especially enjoy (and benefit from) any trade mgt. analysis comments you add to your basic consistent formula and approach. For eg. on the last ES short, when you chose to cover in the afternoon at the exact moment you did was it because ES/SPY was again testing the key 50day simple MA? Or did three witches in hats, pointing owls in three different directions, suddenly appear to you and say NOW?
These nuances are also helpful.
Thanks! As I recall, on that trade I was thinking well I'm already in a resonable profit position. If I sell now, I'll do no worse than leaving some money on the table if ES continues lower. But if ES turns around, I'll be giving back my profit.
DeleteThen I drew a regression trend channel on the five minute chart. It showed at that point we were just on the right hand edge, indicating the downtrend might be over.
I was also thinking that the pattern all week had been for buyers to come in as the day wore on, so add it all up and I decided to exit the trade.
That time it worked well. Sometimes the right time to exit is in the morning, but I'll always miss those since I'm asleep (gotta sleep sometime) and I run the trades without stops or targets.
I wasn't considering MA's or any types of witches :-)
..then, by timestamp, your ES cover transaction was right about the point where the SPX tested its 50 day MA, ca. 2pm ET, by coincidence.
DeleteYour composite readout at the time may have intuitively included that. I noticed a second touch of the MA again about a half hour later, and acted on that second one.
That's how I know about the 'Nexus Point' and I wondered if you chose that as a specific target. I understand that a true discretionary trade is exited more by "the preponderance of the evidence" than by a specific metric; I do that sometimes.
Yup - that certainly lends credence to the 50 MA theory.
DeleteI wrestled for a long time with the system vs. discretionary problem. I eventually found that I made more money by just going with my overall take on the situation than strictly following a number or indicator.