Wednesday, August 29, 2012

Wednesday uncertain

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday uncertain.
  • ES pivot 1410.42Holding above is bullish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias up.
  • ES Fantasy Trader remains short at 1405.75.

Waiting for the Gods...
It's not quite the doldrums - in some ways it's worse.  Instead of just going nowhere, various parts of the market are going off in a bunch of different directions.  My call for a lower close today was right as the Dow and SPX both closed slightly lower, but the Nasdaq actually gained 0.13%.  And the charts are full of similar contradictions as we await the pronouncements of Emperor Bernanke from Mt. Jackson Holympus on Friday.  It's mostly a futile exercise in tea leaf reading, but I haven't got anything better to read right now so here we go...

The technicals (daily)

The Dow: Here's a perfect example of what I mean.  Looking at the daily Dow chart, we now have two small down candles.  That's bearish.  But the indicators are all oversold and today the stochastic finally finished its bullish crossover.  Last night this chart looked bearish, tonight I'm not so sure.  Two days ago we exited the descending RTC for a bullish setup.  Today's action traded entirely outside, but lower.  Bullish trigger?  Honestly, I don't know.

The VIX:  Of all the charts I watch, tonight the VIX offers the most clarity.  It did gain 0.86% today, but did it on a green spinning top that followed yesterday's hanging man.  That's two reversal warnings in a row.  This also brought us right to the edge of the rising RTC.  Add in highly overbought indicators and a hanging man in the futures and I'd say we have a good shot at a lower VIX on Wednesday, which would be good for stocks.

Market index futures: Tonight all three futures are up at 1:18 AM EDT with ES higher by 0.09%.  Today's action produced yet another of many dojis lately.  While the action in the overnight is mildly bullish, the overall general trend since the peak on August 20th is down.  The indicators, which you can see in the daily ES chart here, aren't of much use right now as they've kind of flattened out as the market continues its late August meandering.

ES daily
But I'm printing this chart because I really want to bring up a very interesting point I just noticed - an ascending wedge.  The upper blue resistance line passes perfectly through every peak but two since May 29th while the lower blue support line passes through every bottom except for the one one July 26th which pokes out a bit.  Anyway, I moved the chart over a bit to show where these two lines intersect.  Turns out it's on September 23rd.

Now that's a Sunday, and in fact the last trading day before that is Friday the 21st and that is options expiration and the last trading day of the "U" contract.  And the price point is 1465.  Now I don't expect ES to continue squeezing until the bitter end and I don't believe we're going to hit 1465, but the point is that rising wedges are generally quite bearish.  We now want to watch closely for a break down through the lower support line.  When and if it comes, it could be ugly.  Note also that the wedge closes up in September - the worst month of the year for market.  Just sayin...

Oh, and you can also see on this chart the last rising RTC I drew here beginning on August 6th (the three parallel red, black, and blue lines).  Noe how as soon as we exited the RTC, ES moved lower - that's the beauty of the RTC.  And the red horizontal line is the entry price for the short position I'm currently running.

ES daily pivot: Tonight the pivot drops from 1410.42 to 1407.67.  With ES wandering vaguely higher since the close, this broke us above the new level right at the switching point at midnight, so tht now becomes a positive sign.

Dollar index: Today the dollar gave us a misshapen gap-down spinning top for a 0.36% loss that took us back to the same level we found support three days ago.  The indicators are also now quite oversold so I'd say there's a good chance of the dollar moving higher on Wednesday - bad for stocks.

Euro: Meanwhile, the euro gained today on a green candle that took it right to recent resistance at 1.2569.  After three failed attempts at moving higher than this in the last four days, I'd say it's more likely that the euro moves lower on Wednesday than higher, especially given the highly overbought indicators.  And that would be bad for stocks.

Transportation: Last night I wrote "no sign of a turn-around" for the trans and indeed they went lower today, down another 0.23%.  We're even more below the 200 day MA, we're still in a descending RTC, and the indicators that were oversold are now even more oversold.  In fact, RSI hit 4.8 today,  At this stage, I'm guessing that there might still be one more day lower, but the trans will be turning around before the end of the week.

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  8      6      5           1        .600     -78


     And the winner is... 

This is a hard one.  When you're flying a plane, you always want to land into the wind but it's hard to choose a runway for landing when the winds are light and variable.  And right now the market winds are very light and quite variable.  I'm seeing the slightest of biases to the downside tonight, but not enough to have enough confidence to make any call but Wednesday uncertain.  I think we're going to remain in this holding pattern until next week.  And let me add that tonight's "uncertain" isn't because I'm expecting a doji - it's because I really don't have a good handle on the market right now.  The signal is just lost in the noise.


SPX (candlesticks) vs. EEM (line), daily, 2012
Alert reader Daniel posted an interesting comment today regarding the connection between SPX and EEM based on an observation by the great Dr. Brett Steenbarger.  The interested reader is invited to read it in my previous post.  Since I can't insert images in comments, here is a chart, courtesy of, of what we're talking about.  (Click the chart to enlarge).

The interesting thing here is that EEM has started diverging considerably from SPX beginning over a week ago.  I'm not quite sure what to make of this.  The last time we had a similar situation (at the end of May), SPX went on to post a dramatic three day drop.  If we're setting up for that again, it kind of lends support to my rising wedge theory for ES (see above).

ES Fantasy Trader

Portfolio stats: the account remains for the time being at $169,250 after 59 trades (45 wins, 14 losses) starting from $100,000 on 1/1/12.  Tonight we remain short at 1405.75.  I think I'm going to hold onto this trade because I don't see a lot of upside risk and there's at least as much chance that we could move down into a profit position on Wednesday.  If not, I'll consider taking the loss.

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.

No comments:

Post a Comment

Due to some people who just won't honor my request not to post spam on my blog, I have had to re-enable comment moderation. Comments may take up to 24 hour to appear, depending on when they're made. Sorry about that.