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- Wednesday lower, low confidence.
- ES pivot 1333.25. Holding below is bearish.
- Rest of week bias lower technically.
- Monthly outlook: bias down.
- ES Fantasy Trader standing aside.
Last night I mentioned that the ES pivot was important to watch this morning. At 2:10 AM ES broke decisively under the pivot and stayed there, aside from a short-lived attempt to retake it just before the open. And it was all downhill from there with the Dow ending down 104 points, a decline I wasn't expecting. Apparently, the pain in Spain trumped some good economic news out of China. We've now got three triple-digit losing days in a row. What are the odds of making it four? Let's check the charts.
The technicals (daily)
The Dow: Today the Dow put in an almost identical fat hammer candle to yesterday's, finishing well off the intraday lows. What's important here is that we tested support of the 200 day MA at 12,523 with the session low, 12,522, and it held, with a closing rally to end at 12,617. However, we remain firmly in a descending RTC and the indicators continue their move down from overbought, still several days away from oversold.
The VIX: The VIX put in an unusual bullish engulfing pattern that completely retraced yesterday's red candle and took to VIX right back to its upper BB. That makes two consecutive days of touching and that's usually it before the VIX heads lower. (Early May was a notable exception when the VIX spent 6 days on the upper BB before retreating). RSI just entered overbought but the stochastic isn't close to making a bearish crossover. Just looking at this chart I'd say that more upside on Wednesday isn't out of the question, and that would be bad for stocks.
Market index futures: Tonight, all three futures are in the red at 2:01 AM EDT, with ES lower by 0.23% and NQ actually down an impressive 0.88% (no doubt largely due to Apple). .The continuing drop in ES today gave us a bearish three black crows pattern and kept us firmly inside the descending RTC, all of which suggests further downside to come. But - the stochastic is now precisely positioned at the spot from which the last three reversals have come after big declines. ES is also now exactly at a support line at 1327, following a dip below right after the close on Tuesday.
ES daily pivot: Tonight the pivot drops again from 1344.17 to 1333.25. The upward drift in ES beginning this evening has cut the distance below the pivot in half, but we're still in a rather bearish position here
Dollar index: Yesterday's gap-up inverted hammer was totally negated today as the dollar just continued roaring higher. It has now broken resistance at 57.90 and significantly broke over its 200 week MA today, stopping at 58.07, just short of resistance at 58.10 that goes all the way back to January 2011. And while I'm on the weekly chart, I note that the indicators there are still not overbought. The daily indicators aren't either for that matter, though they're getting close. But with the daily upper BB now at 58.25, we don't really have a reversal warning on this chart yet.
Euro: After seeming to find some support on Monday, the euro just resumed its downward march today, hitting 1.2051 just after noon before recovering to 1.2079 at 1:51 AM EDT. At any rate, this action just drove us further into oversold territory and the stochastic is now quite close to executing a bullish crossover, possibly as early as Wednesday. That said, the euro now has no support until 1.1975 going way back to June 2010. And the last time we hit that level, we'd been oversold for six straight weeks. Right now, the euro is only just entering oversold on a weekly basis.
Transportation: The trans lost 1.18% today on a second hammer just like the Dow. This one closed right on the lower BB and brought the indicators into oversold territory. The stochastic is now positioned to form a bullish crossover by Friday and is in a position from which reversals occurred the last three times it was at these levels.
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 0 5 1 1.000 838
And the winner is...
This is a real tough one. The charts are still looking quite bearish. J-Trader is going long but Forexpros has a "strong sell" on the majors. I think we're getting near the point where a bottom is in, but I don't think it will be Wednesday. We might see a hammer form, but overall I have to believe that we're in for a lower close Wednesday. But I also think we may get a bounce by Thursday.
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 simply stand aside because although I think there's still some downside left, we are now sufficiently far down the current decline where the risk/reward no longer favors the short side, but it's also still too early to go long.
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.