Wednesday, July 18, 2012

Wednesday lower if pivot broken

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday lower if break under ES pivot, else higher - low confidence
  • ES pivot 1352.75.  Breaking below is bearish...
  • Rest of week bias higher technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader standing aside.

It wasn't looking good for my call for a higher close today early on, but my Bernanke Call paid off in the end, with the Dow canceling yesterday's losses and then some to finish with a decent 78 point gain.  And yet we've got a market that can't amke up its mind - the last four sessions have been down, up, down and up.  Does this means tomorrow will be down?  Let the charting begin...

The technicals (daily)

The Dow: It was up.  Then it was down.  Then it was up again and Mr. Market finally made up his mind and we held onto enough gains to finish 0.62% higher on Tuesday.  It still doesn't constitute a trend (recall that I require three consecutive days of directional movement to set the Swing Trade arrow) but it alleviates the concern that yesterday's indeterminate red candle signaled a larger reversal of Friday's big gains.  Anyway, today's action leaves us in not a bad spot - rising volume inside a rising RTC and indicators that continue to rise smoothly on their trip from oversold to overbought.  The only note of caution here is that we've got some resistance around 12,850, just 45 points away, that will need to be crossed to move higher.  But that doesn't seem insurmountable from here.

The VIX:  Yesterday I was thinking (for some unknown reason) that the VIX might go higher today.  It did not, losing another 3.68% on a spinning top as it continues to gravitate closer to its lower BB, now less than a point away.  The stochastic is also nearing oversold and the level from which reversals are formed.  So I'd say this chart might still have a bit more downside left to it, but the flashing yellow caution light has now turned on and we may be in for a higher VIX before the end of the week, and therefore lower stocks.

Market index futures: Tonight all three futures are down at 1:24 AM EDT with ES off by 0.33%.  We have an interesting pattern playing out here.  Last Friday and Monday gave us a big up day followed by some consolidation at the top.  Today gave us another decent up day.  And the new developing candle looks just like Monday's consolidation day (recall that Monday the market moved lower).  We're getting a flashing yellow light here in the indicators too with RSI now turning lower before even reaching overbought and the stochastic now within a few days of forming a bearish crossover.  This, ahem, bears watching.

ES daily pivot: Tonight the pivot rises from 1347.67 to 1352.75.  Unfortunately, the combination of a rising pivot and a sliding ES leaves us now just one point above the new number.  This puts us on pivot watch.  We want to see if we bounce off or break through.

Dollar index: After yesterday's big drop, today we got a gravestone doji out of the dollar on a small 0.06% loss.  The dollar remains in a four day descending RTC but we are now much closer to oversold than overbought on the indicators.  While the doji is a reversal warning that requires confirmation, I see at least the beginning of a flashing yellow warning light on this chart.  Tomorrow should tell the tale.

Transportation: I have alert reader Daniel to thank for turning me on to the importance of following the transportation index and today we got an interesting divergence here.  While the Dow was up 0.62%, the trans lost 0.74% on a red hammer that briefly tagged the 200 day MA.  Now the last time this happened was only three days ago, but back then we were at the bottom of being oversold.  Now we're out of that region and today's loss was enough to put a dent in the upward progress of the indicators.  Also, note that today's volume was considerably higher than yesterday's.  From a Dow Theory perspective, this chart is at least flashing a yellow warning light.

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    7      0      4           0       1.000     581

     And the winner is...

TLT, daily
With so many yellow caution lights blinking suddenly, it's time to pull out my secret weapon - the TLT.  This one is worth a chart tonight.  Check this out.  Notice the rising RTC beginning on 7/5.  People loving them yummy bonds, just scarfing 'em up.  Then yesterday, uh oh, them bonds don't feel so good.  We close outside the RTC - bearish setup.  And then today, urrrrp, down 0.79%, bearish trigger.  I will note that the last big TLT top, on 6/1 marked the start of a three-week rally in the market.  And the recent TLT action is looking pretty clearly like a top to me.  Just sayin...

Oh yes, so who's the winner?  Hard to say.  The overnight ES position is deteriorating as I write, the trans are looking decidedly weak, and the charts are all looking like they're starting to run low on gas.  Except for the TLT, which is signaling full speed ahead.

I wish I could make it simple, but tonight I'm going to have to make it a conditional call.  If ES breaks under its pivot of 1352.75 by let's say mid-morning, then we're closing lower Wednesday.  If it bounces off, look for a higher close.  Right now, my bias is to the downside, as ES just continues moving lower as I hit the Publish button.

ES Fantasy Trader

My decision to stand aside last night was basically not too bad.  ES finally did move a bit higher from where it was when I wrote my post, but there wasn't all that much money to be made.  It seems to be more a day trader's market the past few days.

Portfolio stats: with no trade again last night the account remains at $160,625 after 51 trades (40 wins, 11 losses) starting from $100,000 on 1/1/12.With a conditional call tonight, once again I can't really put on an informed trade, so we'll just stand aside once again.

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. As of 1pm $TRAN is again above its 10 and 20day sma, thus negating (for now) the warning divergence noted last nite..

    Will need to see some capital slosh over from bonds and the dollar to decisively push thru to new index highs for the month, imo.

    1. Ha - I was just looking at that. The daily tran chart is now looking in much better shape, but if you back out to the weekly, you'll see that the stochastic is exactly on the cusp of a bearish crossover with the %D and %K lines being identical at 78.1, and that is cause for caution.

      Also I'm a bit surprised at the strength of the TLT today given the bearish signals it was emitting last night. I would have expeected more of a decline today. It's actually up 0.27% right now, though admittedly on a red candle. So the Dow's up, the TLT is up - this money is coming from somewhere. Hmmm...

  2. Stocks and shares go up because more individuals want to buy than offer. When this occurs they start to bid higher costs than the inventory has been presently trading.

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