Actionable ideas for the busy trader delivered daily right up front
- Friday uncertain.
- ES pivot 1364.75. Breaking above is bullish.
- Next week bias uncertain technically.
- Monthly outlook: bias up.
- ES Fantasy Trader standing aside.
We got the downside continuation I was expecting today with the Dow shedding another 92 points. Friday could be tricky, with more employments numbers coming out. We can't know what they're going to be, but we can look at the charts and see if we can figure out how to serve an ace on Friday.
The technicals (daily)
The Dow: Today's candle looks almost, but not quite like a hammer. While it is tempting to read positive signs into this, I'd be careful. The stochastic, which has been turning in a gold medal performance since June 20th, continues its move from overbought to oversold, implying that the selling here isn't over yet.
The VIX: Last night I wrote "I'd favor continued upside here on Thursday" and the VIX gave us just that, down 7.33% on a long red candle. This short-circuited the stochastic bullish crossover and the stochastic in fact now looks poised to execute a bearish crossover from a low level. This really bears watching because it often presages strong moves. For example, on May 14th, we got a bullish crossover form a high level and the VIX went on to go from 21.87 to just over 25 in the next four days. The idea here is that we could conceivably see more downside to the VIX over the next few days which would be positive for stocks.
Market index futures: Tonight we have another mixed market. NQ and YM are actually up a bit but ES is down one tick at 1:08 AM EDT. Today's candle was a broad spinning top that continued the now three day downtrend. Interestingly, I was not able to fit a good RTC to this decline and ES actually staged a rally from 2 PM right into the close. And it's only been wandering around the flat line since then, almost like the bears have suddenly gone into hibernation. Ad as I write this, ES has now turned positive - by one tick.
And while RSI remains quite overbought and the stochastic continues lower, momentum, and OBV have actually turned higher. With the overnight candle developing as a doji, there does seem to be some indecision in the air - more than one would expect from looking at the past three days alone.
ES daily pivot: Tonight the pivot drops from 1373.25 to 1364.75. With ES having posted some afternoon gains, this drop now leaves us just a couple of points below the new number - definitely within striking distance. Whenever we're this close to the pivot, it pays to pay attention. Breaking above it before the open would be bullish.
Dollar index: Wow - we have another megaphone (diverging triangle) pattern developing in the dollar, which put in a 0.33% gain today on a tall green candle. These triangles usually resolve in the same direction they were entered form, so in this case we should be due for further gains in the dollar, which would be bad for stocks. The stochastic, which just finished a bullish crossover, supports this idea.
Euro: Meanwhile, the euro ended the day lower on a crazy red candle with a tall upper shadow. It has now clearly broken down from its support at 1.2250and is continuing to drift lower in the overnight. The indicators are all only about halfway down from overbought, so more downside could be possible here on Friday.
Transportation: An interesting development in the trans today - while the Dow dropped 0.71% the trans fell just 0.05% and formed a tall dragonfly doji that nearly touched the lower BB, co-located with support at 4935. There's at least a hint of a turn-around on this chart.
Accuracy (daily calls):
Month right wrong no call conditional batting Dow
average points
April 7 9 2 .438
May 10 7 3 2 .632
June 8 6 6 1 .600 632
July 11 2 6 1 .857 917
August 2 0 0 0 1.000 125
And the winner is...
 |
| Dow hourly |
So tonight we have some pretty strong technical reasons to go higher and some good reasons to go lower. There seems to be considerable indecision in the air. The TLT formed a doji and its stochastic is all knotted up. I'm afraid this one is too hard for me. Logic would dictate we're going lower again on Friday, but something doesn't feel right here. I'm afraid I'm just going to have to call Friday uncertain. The best I can say is to watch the ES pivot Friday morning. If we can break above that, we might actually go higher.
ES Fantasy Trader
It was looking a bit iffy this morning for this trade, but patience paid off once again for a 15.5 point gain. I pulled the trigger just before lunch when it looked like ES was breaking out of its descending RTC. With so much uncertainty surrounding recent developments in Europe, I decided that there was no point in being an oinker about it I left a little on the table, but not much. Although I still think there's more downside ahead, it never hurts to lock in gains. Tonight, with our earlier momentum seemingly gone and some real mixed signals, I'm just going to stand aside and watch the Olympics instead.
Portfolio stats: the account the account now rises to $180,375 after 55 trades (43 wins, 12 losses) starting from $100,000 on 1/1/12.
BOT 10 ES false SEP12 Futures 1358.00 USD GLOBEX 11:26:58
SLD 10 ES false SEP12 Futures 1373.50 USD GLOBEX AUG 1 01:18:10 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.
Posts
Aaaah, no Michele, I've been thinking about this, since I read your Thursday final posted comment..
ReplyDelete“..Maybe some day I'll try correlating everything with everything...”
Aaah, no, DON'T do THAT. That’s exactly what the hero of the movie ‘Pi’ did, and that’s the movie which was number one/first listed on your movie favorites list in your blogger profile! That hero BURNED out. Don't do that.
No, my notes about the emerging markets were much more limited. Dr. Brett was amazing (so psychological and also so systematic and empirical); he DID all the heavy lifting on an EEM:SPY model, working in two separate timeframes. He just never finalized it into an actionable set of algorhythms.
Locating the last 3--5 postings by him would be a far easier task than “correlating everything with everything”. Even if the site does not have, or no longer has, an internal Site Search feature. (Most postings of his should still be archived in the vaults of the major search engines, so a global search including Dr. Brett’s name plus subject information should link to the archived articles. They were Blogger posted, NOT internal to some chat room.)
And I also have a great deal of his stuff on my own hard-drive, unfortunately mainly in files entitled “Dr. Brett S misc good stuff #49” and such, along with #48 and all the others. That said, I think the basic premise is also useful, without attempting to turn the general concepts into objective indicator-readings or signal triggers.
On daily charts the relationship between EEM and SPY as a ratio seems to act much like daily RSI-7, a middling orphan timeframe not much followed, and for good reason.
This good reason is that it gives lousy signals, and in the modern era everybody wants signals, they don't want to spend an hour each night with a thinking cap on, like the Night Owl.
But as a concept, it can shine light. If RSI-7 hits what would be (on its longer term cousin, RSI-14) an “overbought zone”, this is usually not a sell sign and often is a buy sign. If this truly is an emerging trend, RSI-7 should be a strong dog, and should plow up through threshold levels, and hit the gong on the ceiling. If it backs away from that zone, it isn't a “buyable pullback”--as in longer timeframe RSI-- rather its squirrelly behavior is not at all suited to the label Strong Dog, a fatal momentum deficit.
In a similar way, in the short term a preference for EEM is bullish, animal spirits are elevated. In a longer timeframe however, it can mean enthusiasm overdone. In a sense it's much like IWM:SPY type comparisons.
I’ll try to find what I can in my own archived files.
I track the ratio, much as many track XLY:XLP and BKX:SPX, or some comparison between Transports and Industrials. Global risk ON tends to closely track with EEM:SPY on daily timeframes, but whether one leads the other or not I couldn't say.
--And btw, your comment about the type of indicator construction Dr. Brett was working on being similar to the work done by Rob Hanna at Quantifiable Edges is quite right on. I know for a fact that B.Steenbarger was an influence on Rob’s formative period around 2007--2008, and that the two corresponded. There’s a common ‘elegance’ of simplicity to both their analytical work.
"DON'T do THAT"
DeleteLOL - don't worry, I'm not quite ready to start drilling into my brain yet. I just wish those two guys in the dark sunglasses would stop following me around though.
"a global search including Dr. Brett’s name plus subject information "
Oh duh - don't know why I did't think of that. Sure enough - a search on "trader feed eem spy" pulled this link right up: http://traderfeed.blogspot.com/2010/04/etf-pairs-as-sentiment-gauges-eem-and.html
I'm going to go through that - after the Olympics.
"RSI-7, a middling orphan timeframe not much followed,"
Oddly enough, this is exactly what I have set up on my daily charts. I use RSI-14 on my 5-minute charts. There is of course a whole art in itself around reading indicators, one that I'm still working on. Maybe I'll write a post about that sometime (after the Olympics).
Anyway, thanks for the comments - I always love hearing what you have to say.