Actionable ideas for the busy trader delivered daily right up front
- Thursday lower, low confidence.
- ES pivot 1373.25. Holding above is bullish.
- Rest of week bias lower technically.
- Monthly outlook: bias up.
- ES Fantasy Trader holding short at 1373.50.
I'll admit I was a bit surprised at the big pop out the gate this morning, though now I'm wondering if this had anything to do with the, ahem, "trading irregularities" I read about in an alert from my broker. In any case, those issues were soon resolved and the Dow ended going lower as I had originally expected, closing down 38 points and establishing a new downtrend. I guess Mr. Market didn't really like what the Fed had to say. Question now is whether this will carry through to Thursday. There has to be a clue in here somewhere.
The technicals (daily)
The Dow: The Dow's solid red candle was bearish on the face of it, particularly when coupled to the stochastic which has now completed its bearish crossover. Nothing here to suggests anything but further downside.
The VIX: Meanwhile, the VIX did go higher today, also as I expected, but put in a tall doji. However, with a bullish stochastic crossover now complete, I'd favor continued upside here on Thursday.
Market index futures: Tonight all three futures are running higher with ES up 0.24% at 1:09 AM EDT. Today's ES candle was also a doji and the overnight action seems to be suggesting a reversal. However, the indicators are all quite overbought and that suggests more downside to come.
ES daily pivot: Tonight the pivot drops from 1377.33 to 1373.25. We just broke above the new level at 12:30 AM. If this holds into the morning, it would be bullish.
Dollar index: The dollar took off after the Fed announcement today to gain 0.57%, breaking out of its recent consolidation to the up side. With its indicators all depressed, there's no reason it couldn't go higher again Thursday, and that's bad for stocks.
Euro: Meanwhile, the euro moved lower again today, though doing it on a green candle.
Transportation: After hitting their 200 day MA on Tuesday, the trans followed through on their recent pattern by moving lower again today. And while the Dow dropped just 0.29%, the trans fell a solid 2% on a tall red candle that was also good for completing a bearish stochastic crossover. With the lower BB down to 4933, there's still more downside possible here.
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 1 0 0 0 1.000 33
Performance:
Here are my performance stats for the first seven months of 2012. The first two columns are for my trading account. The next, "ESFT", is the ES Fantasy Trader. Following that I've now added the results for my IRA. The last is the Dow, my reference benchmark that I try to match or beat.
Date Trading, Month Tr. YTD ESFT YTD IRA YTD Dow YTD
1/31/12 7.41% 7.41% -0.50% 6.18% 3.41%
2/29/12 3.67% 11.35% 7.88% 9.02% 6.02%
3/31/12 1.76% 13.31% 29.88% 10.05% 8.16%4/30/12 2.35% 15.97% 41.75% 10.90% 8.17%
5/31/12 -1.92% 14.23% 26.63% 4.91% 1.45%
6/30/12 4.33% 19.17% 40.38% 2.80% 5.44%
7/31/12 2.96% 22.69% 76.00% 10.98% 6.49%
And for those who might be interested, here's a daily graph of my trading account balance so far this year (I tried, but failed to get Excel to draw vertical lines on month boundaries). This corresponds to a Sharpe ratio of 0.32.
And the winner is...
Tonight I'm seeing some confusion in the charts, probably reflecting uncertainty over whatever the heck the ECB is planning on saying Thursday. But just as the chatter was right about the Fed today, the chatter I'm hearing now is that the ECB is going to disappoint the market. And since there are also enough technical signs to warrant lower stocks, I'm going to call Thursday lower.
ES Fantasy Trader
Portfolio stats: with no trade last night the account the account remains at $172,625 after 54 trades (42 wins, 12 losses) starting from $100,000 on 1/1/12. Tonight we remain short at 1373.50. I'm still a bit nervous about doing this in the face of upcoming ECB news, but we'll see. I contemplated getting out of this trade Wednesday afternoon, but I'm going to gamble that there's more downside in store on Thursday. I'll admit that this strategy is riskier than I usually play.
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
thx, again, for continuing these postings thru the Olympics!
ReplyDelete"..uncertainty over whatever the heck the ECB is planning on saying Thursday..."
Seems like the markets have priced in a .25% rate cut, per some Forex survey I ran across earlier this evening. More than that would be a surprise. The variable area is whether and how much they continue their bond buying program.
It is also always possible that all of this focus on a single specific announcement is just camoflage for big players to buy or sell shares they had intentions for anyway. The over-leverage problems are systemic, and will be worked out over months and years, NOT by big announcements...
I'm personally keeping positions lite because to me this is now more guesswork than TA. I like simple sine wave patterns, or clear crossovers, or obvious breakouts. This engaging in second derivatives of guesswork is not my cup of tea.
One thing has caught my eye tho-- and that is the trailing 5day RS outperformance of emerging markets over the US. Had one put equal amounts into EEM and SPY five sessions ago, the happier human would be the EEM investor.
Yes, well Mario took the air right out of *that* bubble, eh? The chatter, at least what I was reading, turned out to be correct. Technically, of course the market was still going lower. My only concern was that if the ECB had suddenly announced that all the Europeans had unanimously agreed to resolve their problems, then we could have gone higher. But they didn't and we didn't.
DeleteYou are wise to tread lightly in this market - this summer is proving to be very tricky.
I'l take your word on EEM. This is a whole area I don't even look at because I don't understand it. I have enough trouble figuring out which way ES is going. If you have insights on this, I'd love to hear them.
Michele- I do have some insights on this, and they are courtesy of the very Dr. B.Steenbarger you mentioned the other nite.
ReplyDeleteHe put much emphasis on use of a EEM:SPY ratio, with several nuanced applications. It is more than just a Risk On/Off type metric. I and several other readers of his blog urged him several times to complete an experimental timing model-in-progress he devised, simply using this ratio, plus 20day new highs/lows on SPX.
I don't know whether he ever did finalize that-- but since you have his Archives Blog right there on the side-panel, the simplest of searches might yield you his last few posts on the subject...
btw, a really prudent and savvy exit today on the ES short... before that late partial market recovery. Excellent trade mgt, to go along with a careful and astute setup analysis. The "Russian Judge" awards [ ] points out of a possible [ ]!
(I wouldn't presume to guess what a russian-judge would award, I leave that to you or others...)
One more day of Event Risk ahead..
Hmm - I do remember Dr. S's frequent mentions of the NH/NL, and I've mentioned that myself sometimes, but I guess I must have missed the EEM part. Now I could have sworn there was a "search" box in Trader Feed, but it doesn't seem to be there anymore, which is going to make it hard to find the references.
DeleteI often wonder what happened to him. I hope he's doing well in his private practice.
And thanks for the compliments - the Mighty Regression Trend Channel prevails again. While I am still near-term bearish, it just seemed like a good time to take the money and run.
The judges gave this one a solid 9.5, with a 0.5 bonus for resisting the temptation ot fold when the trade when against us.
Michele-
ReplyDeleteThis snippet is from my own Archives, on my hard-drive. It isn't meant to be complete, it was from the system-development period of Dr. Brett’s EEM/SPY timing model. What follows is a mix of paraphrase and direct quote-- it was for my own review, not re-publication, so take it as a general overview only.
From Dr. Brett, summer of 2009..
..As a simple example, how traders view the shares of emerging markets speaks volumes regarding their attitude toward risk-assets in general. If bullish on emerging markets they’re probably also bullish toward a host of other assets, from commodities to emerging market debt. Such sentiment factors are likely to lead to trackable directional tendencies.
I went back to 2006, just to take a quick trendscan look, and examined what happens when the Five-Day Change in the emerging market etf (EEM) is up by 2% (STRONG) or more, and when it is down by 2% or more (WEAK).
Interestingly, when EEM has been STRONG on a five-day basis, the next five days in SPY have been weak, averaging a loss of -.44% (130 up, 162 down).
When EEM has been WEAK on a five-day basis, the next five days in SPY have averaged a gain of .08% (128 up, 97 down)!
BUT.. when we look 20 days out, following five-day strength and weakness in EEM, we see a different pattern.
TWENTY days after a strong five-day EEM, SPY has averaged a loss of -.51% (162 up, 130 down). Basically flat, given a normal SPY five-day return of -0.44% during the study period.
Twenty days after a WEAK five-day EEM, SPY has shown further weakness, with an average decline of -1.2% (119 up, 106 down).
Other factors (larger market trends, behavior of other assets) also affect the relationship between EEM strength/weakness and prospective price change in SPY.
(That sort of thing... -D.)
Ah, OK - this sounds like the kind of thing Rob Hanna does on his Quantifiable Edges blog. There might be something to this. After the Olympics are over, I might try doing a cross-correlation between EEM and SPY. Maybe some day I'll try correlating everything with everything if I can find some way to automate the data download.
Delete