Friday uncertain, doji possible

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Friday uncertain but bias higher.
• ES pivot 1422.17.  Holding above is bullish.
• Next week bias uncertain technically.
• Monthly outlook: bias uncertain.
• ES Fantasy Traderstanding aside.

Recap

You Bet Your Life

Yowza!  That's what I'm talking about.  Last night I really had to call Thursday as uncertain, just because I had no way of knowing what the ECB was going to do today, but I did write that "we will see this market close higher if the ECB has anything good at all to say".  Turns out Super Mario said the secret word, and the word was "unlimited".

That was all Mr. Market needed to hear to go on a 245 point tear in a session that actually strengthened into the close. The only thing that surprised me was the size of the advance.  I was thinking more along the lines of 100 points or maybe 125, but 245?  Holy moly.  This is especially amazing since almost the entire preceding month was composed of nothing but dojis and small range days.  Tonight we explore the usual question following big up days - can it hold or are we in for a retracement?  L:et's check the charts.

The technicals (daily)

The Dow: Today's jolly green giant marubozu brought us right up to double resistance: the upper BB at 13,315 and the highs for the year at about the same level.  The market has tested the13,290 level four times already this year and each time it has been rejected.  Is the fifth time the charm?  Well consider that the other four times we were already in a quite overbought state, much more so than now, where the indicators are still less than halfway between oversold and overbought, even after today's big gains.  I'd say this increases the odds that the market might be able to push higher from here.

The VIX:  Last night after getting a bearish RTC trigger I wrote "I think the VIX still has lower to go.".  And so down we went today, with the VIX shedding 12.06% on a tall red marubozu.  And even this drop only just took us off overbought on the indicators, leaving us halfway between the BB's.  The futures meanwhile gapped down almost as much, closing under 10 for the first time ever.

VIX Oct. 16 calls

And here's an interesting chart.  I made this while doing some investeigation of the VIX of the VIX.  (Click on the chart to enlarge).  These are VIX calls for October at a 16 strike (which was even money until today).  Notice how the price rose slowly until the end of August and then suddenly took a dive, losing almost half their value in just a week.  That doesn't seem to be the behavior of a market that's going to be headed lower.  I'd say this is all pointing to more downside for the VIX over the next few days.

ES daily

Market index futures: Tonight all three futures are up a bit at 1:20 AM EDT with ES higher by just 0.07%.  I brought this chart up last week and wanted to update it tonight.  Remember the rising wedge in ES? A week ago we fell out of it and then traded sideways for three days.  I was beginning to wonder if the break lower that you'd expect was going to happen or not.  Then look what happened today.

We popped right back up into the wedge, and indeed almost right up to the upper resistance line.  This now puts us back on track for my theory of compression into the expiry of the "U" contract in two weeks, after which we're due for a correction.  Originally, I didn't think that ES 1465 was looking possible by that time - now I'm not so sure.  At least one blogger I read (elliotwavetrader) has a target of 1459 for SPX, which is pretty close.

So we continue to squeeze the wedge while we watch and wait.  In the meantime, I note that even after today's big jump, we're still only just entering overbought territory.

ES daily pivot: Tonight the pivot leaps from 1403.00 to 1422.17.  But with the big gains we saw today we remain comfortably above the new number by a good 10 points, so that's positive for stocks.

Dollar index: Today the dollar let go of the 200 day MA, both opening and closing under it for a 0.25% loss.  The dollar on $USDUPX now has no support until 55.73, which is also its lower BB.  So there's at least a bit more downside to go here.

Euro: As one would expect, the euro rose again todaywith a gain that puts it in overbought territory, at least on the RSI.  However, the stochastic has not yet begun forming a bearish crossover, so there's still some upside available here on Friday.

Transportation: Today the trans shot out of their descending RTC for a clear bullish setup.  This is confirmed by the indicators all rising off oversold and the nicely completed bullish stochastic crossover.  While we might see a pause on Friday, it looks like the recent slide is over.


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      8           1        .600     -78
September 0      1      2           0        .000     -55

     And the winner is...

While the charts are still looking fairly bullish even after today's big gains, we have to be cognizant of the normal pattern in which we see s small range consolidation after a big up day where the market takes a breather to recharge.  It's also Friday and traders may be wanting to lock in their gains from today.  So I hate to do it, but I must once again throw the Uncertain card, because I'm expecting a doji day or spinning top on Friday.  I certainly don't see another triple digit day - in either direction, not after the big drop in the VIX today.  If anything, I'm going to maintain a slight bias to the up side again.

ES Fantasy Trader

Last night I made this prediction: "I'm going to bet that the ECB will provide a pop on Thursday that will save this trade,"  Ka-ching!  The bet paid off handsomely.  It was more like a rocket ship than a pop, but I never object to taking more money than I was expecting,  In this case, we salvaged what looked like another loser for a nice 20.5 point profit.  Once again, patience paid off in the end.

Now I know that there are some who will claim that I had no way of knowing what the ECB was going to say, that it could have easily gone the other way, or that I just got lucky.  To these, I answer that yes, it was a guess, but it was an educated guess supported by what the charts were saying last night.  And anyway, as we know it's better to be lucky than good.

Portfolio stats: the account now rises to $176,500 after 61 trades (46 wins, 15 losses) starting from $100,000 on 1/1/12.  Tonight we stand aside in the expectation that there's not going to be much action in the remainer of the night, and it's not certain which way it will move anyway.

SLD    10    ES    false    SEP12 Futures     1428.25    USD    GLOBEX    10:59:28
BOT    10    ES    false    SEP12 Futures     1407.75    USD    GLOBEX    SEP 4 02:04:01


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.