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- Tuesday lower, low confidence.
- ES pivot 1410.42. Holding below is bearish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias up.
- ES Fantasy Trader going short at 1405.75.
Things were looking up, literally this morning for my bullish call on the day until lunch time when a slow downward grind took over to send the Dow off by 33 points. I think today will be pretty much a template for the rest of the week. Unless Israel drops an atomic bomb on Tehran or Martians land on Wall St., look for more of this aimless wandering about until after Labor Day.
The technicals (daily)
The Dow: Well despite today's 0.25% loss, the Dow traded entirely outside its latest descending RTC today, so that's a bullish trigger. And while the RSI, momentum, and money flow are not yet oversold, the stochastic did just barely complete a bullish crossover today. So the overall picture here is a bit murky, but I'd still not be short right now.
The VIX: I was surprised here too today as the VIX didn't just retrace yesterday's losses but gapped up 7.71%. The candle is a hanging man that remains inside the rising RTC, so one should await confirmation before declaring a lower VIX. Of note though is that the stochastic, which looked ready to execute a bearish crossover last night, did not do so today and is getting threaded out. So overall, it's just more murk on this chart.
Market index futures: Tonight all three futures are down at 12:56 AM EDT with ES lower by 0.20%. Today's red candle contradicts the indicators which are starting to rise from oversold. The stochastic, which appeared to be starting a bullish crossover is now simply threaded out. Right now the candles look more convincing, and the signs there are for more downside.
ES daily pivot: Tonight the pivot rises from 1405.67 to 1410.42. Since ES has been stepping lower since mid-afternoon, it crossed under the pivot at 10:20 PM and is now even further under the new number, a bearish sign.
Dollar index: I did get this one right today, as the dollar gained 0.11% on a green closing marubozu. With the bullish stochastic crossover now complete and the other indicators having bottomed at oversold, the way looks clear for further upside in the dollar on Tuesday.
Euro: Meanwhile, the euro continues to meander lower, putting in a small doji today. But it's not being confirmed in the overnight and the indicators are all just turning down from highly overbought levels, so it looks like a lower euro is in the cards for Tuesday, which squares with my expectation for a move higher in the dollar.
Transportation: This one definitely caught me by surprise today. I had expected the 200 day MA to act as support here. It turned out to be as much support as a pair of lead water wings as the trans dropped 0.88%. While there's nothing bullish in the candles here, the indicators have now been driven to oversold levels, though there's no sign of a turn-around there yet either.
Sentiment: Once again it's time for the latest weekly TickerSense Blogger Sentiment Poll. We continue to track the poll to see how well it performs. Here's the updated cumulative list for this year:
Wk.# Week % Bullish % Bearish NightOwl SPX Accuracy
1 1/3 46 21 + 1258 1/1
2 1/9 56 37 + 1278 2/2
3 1/17 41 33 + 1289 3/3
4 1/23 46 32 + 1315 4/4
5 1/30 48 31 + 1316 5/5
6 2/6 56 30 + 1345 6/6
7 2/13 48 31 + 1343 7/7
8 2/21 44 32 + 1361 8/8
9 2/27 48 24 + 1366 9/9
10 3/5 43 26 + 1370 10/10
11 3/12 46 32 + 1371 11/11
12 3/19 46 29 + 1404 11/12
13 3/26 39 29 + 1397 11/13
14 4/2 42 21 + 1408 11/14
15 4/9 25 46 - 1398 12/15
16 4/16 26 48 - 1370 13/16
17 4/23 30 48 - 1379 14/17
17 4/23 30 48 - 1379 14/17
18 4/30 44 32 + 1403 14/18
19 5/7 23 50 - 1350 15/19
20 5/14 32 44 - 1353 16/20
21 5/21 30 52 - 1295 16/21
22 5/29 35 42 - 1318 16/22
23 6/4 32 48 - 1278 16/23
24 6/11 28 40 - 1326 16/24
25 6/18 39 26 - 1343 16/25
26 6/25 38 46 - 1335 16/26
27 7/2 41 40 - 1362 16/27
28 7/9 42 38 - 1355 16/28
29 7/16 44 32 - 1357 16/29
30 7/23 33 42 - 1363 16/30
31 7/30 43 22 + 1386 17/31
32 8/6 52 28 + 1391
33 8/13 43 21 + 1406
34 8/20 46 31 + 1418
35 8/27 39 29 + 1411
Again, the SPX number is the closing price of the S&P on the Friday before each new poll comes out. The "NightOwl" column is how I voted. Since the poll is for 30 days out, after the first four weeks we're able to see how well we did. This week we see that my bullish call on 7/30 was right (finally), the S&P now being higher than then. I'm using the column "Accuracy" to track my calls. So now I'm 17 for 31. For the record, I voted bullish again this week based on my reading of the SPX monthly and weekly charts.
This week we note that there was a two point decline in bearish sentiment but a 10 point drop in bullish sentiment, narrowing the gap between the two considerably and clearly reflecting the overall uncertainty in the market as August draws to a close. Net net though, the bias remains positive.
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 7 6 5 1 .571 -100
And the winner is...
Hmm - I'm starting to wonder if maybe Friday's big gains were not a trend change but just a one-off in response to Uncle Ben's remarks on the economy. I'm also concerned by the continued move lower by the futures in the overnight that's taken us below the pivot. Tonight we're also looking at a rising TLT and declining copper. Also, gold seems to have topped and the chatter I'm reading is that the expectations are that Uncle Ben is not going to announce QE3 on Friday. There's also some bad economic news out of Japan and China tonight. All in all, it's adding up to a picture biased to the downside. And finally I note that the weekly charts are looking decidedly more negative than the dailies. So while I'm not expecting a big decline, I do think we stand a good chance of closing lower Tuesday.
ES Fantasy Trader
Today I settled for a puny 1.5 point gain on last night's long trade, and was glad I got that much. Given the choppy, indecisive nature of the market, I decided not to push my luck - and was glad of it since 1413 ended up being about all that ES had in the tank today.
Portfolio stats: the account now rises to $169,250 after 59 trades (45 wins, 14 losses) starting from $100,000 on 1/1/12. Tonight we're going short at 1405.75.
SLD 10 ES false SEP12 Futures 1413.00 USD GLOBEX 11:53:24
BOT 10 ES false SEP12 Futures 1411.50 USD GLOBEX 00:44:59CUA (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
Michele-
ReplyDeleteI love the way you methodically go through the same basic routine each night. I know such discipline is necessary when one is engaging in discretionary anticipatory market timing, the most demanding form of investment analysis there is. It’s so easy to bake a pre-existing assumption or an existing bias into the scans and surveys. Your kind of rigorous cross-comparing serves as a unique form of check and balance. I've not seen its like before, regression analysis mixed with nuanced candlestick study. I and all your readers hope you have continued health and continued interest and continued generousity of spirit for years to come; may you hoot in the wee hours for as far as the eye can see!
I mention this because I'm always reluctant to bring to your attention any additional factors, partly because you have such a regular routine, and also because I'm loathe to upset the delicate balance and cause you to “Pi out”.
(--And shame on any reader of this column who doesn't understand that reference, it means you haven't done even the minimum due diligence on the column’s author... which is checking the one-click away Blogger profile.)
Michele, other than periodically reminding you that Dr. Copper is a jealous metal and doesn't like to be totally ignored, I mostly try to limit comments I've offered to your wide-ranging existing categories. But there are two recent observations which I believe are of broad significance, of the level of say ‘Hindenburg Omens’... that is, a cluster of divergence between measures of underlying strength, and headline price.
One we looked at several weeks ago: the EEM:SPY ratio of relative strength, and especially the nuanced work done with it by Dr. Brett S.
Just simply on the most primal basis, no second derivatives or anything, it’s only been lower (marginally) on two other occasions the past 5 months--late May and late July. That speaks for itself, standard deviations are being pushed at. (Five months is the just the timespan of the chart I'm looking at, no special significance to that timeframe...)
Another factor that comes to my notice is that the Bullish Percentage reading of the OEX, the biggest 100 companies in the SP-500, is outperforming the Bullish Percentage of the SPX itself. And both are outperforming the BP of the smaller cap indexes. This is not reassuring to bulls, since any advance is most trustworthy when the big institutional capital is flooding into the smaller cap markets, meaning they are confident they will have lots of buyers to sell to should they wish to unload.
These are such broad and integral factors I thought I'd bring them to your attention.
Daniel, I always greatly look forward to your well thought-out comments and keen observations. It was you who turned me on to the importance of Dr. Copper (and I did mention copper several times this week).
DeleteYou also pointed out Dr. Brett's EEM/SPY observation to me. I believe the relevant quote from him right now is this: "When traders are more risk averse and anticipating global slowdown, they will tend to seek the relative safety of large cap stocks in the world's largest economy. That will show up as SPY outperforming EEM."
Now is that what you're talking about? Because it seems to me that SPX and EEM are actually pretty highly correlated, at least for the past six months. I do see the disconnect you mention at the end of May and it was followed closely by a big dump in SPX. I don't see the one in July.
But right now I do see a major divergence as SPX is pretty much holding its own while EEM has been falling steadily since August 21st. So is this a bullish sign for SPX as investors flee EEM to "seek the relative safety" of SPX? Or are we setting up another late May scenario? Other interested readers might want to check tonight's post where I have included a chart of SPX with EEM overlaid on it so you can see for yourself.
And I also see your point on OEX - and find it worrisome. And you might want to look at something I noticed in ES, also in tonight's post. It's beginning to seem that there's something in the wind.
In any case, I always enjoy reading your observations because you point out a lot of stuff I miss. There's only so much one person can do - that's why I enjoy so much hearing from others. That was also one of Dr. Steenbarger's big talking points towards the end - that traders should communicate more with each other.