Thursday, September 27, 2012

Thursday higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday higher, low confidence..
  • ES pivot 1430.25Holding above is bullish.
  • Friday bias uncertain technically.
  • Monthly outlook: bias uncertain.
  • ES Fantasy Trader standing aside.

We got the decline I was looking for today as the Dow gave up another 44 points for its fourth straight decline.  With Europe starting to perk up again is there more downside coming on Thursday?  We summon the force of the charts for an answer.

The technicals (daily)

The Dow: I figured the sell off wasn't done yet and the Dow indeed shed another 44 points today.  We now have a solid descending RTC going here and we're right in the middle of it.  Aside from the fact that the indicators moved a bit more into oversold territory today, there's still no real reversal sign on this chart.

The VIX:  Last night I said that "a distinct possibility for the VIX to move higher still" and sure enough, it gapped up almost 9% today on a tall green marubozu.  That was enough to propel the indicators to overbought but there are still no reversal signs on this chart.  The futures though put in a spinning top, so that's at least a second order reversal sign, but I can't call the VIX lower on that basis.  It looks higher to me.

ES daily
Market index futures: Tonight all three futures are up for a change at 1:06 AM EDT with ES higher by a substantial 0.42%.  This move has caused all the indicators except momentum to hook up from oversold levels, indicating a bottom is in and move the stochastic into position for a bullish crossover, possibly on Thursday.  While we remain inside the descending RTC, this chart is looking healthier tonight than yesterday and a move higher is not out of the question.  Take a look.  The indicators are my Fave Five, from top to bottom: RSI, momentum, money flow, stochastic, and OBV.  Moves like this generally indicate a reversal is coming.

ES daily pivot: Tonight the pivot drops from 1443.08 to 1430.25.  This big dump combined with the evening gains in ES put us back above the pivot right at midnight.  Unlike last night when we were below and stayed there, this is a positive development.

Dollar index: The $USDUPX took a big pop today gaining 0.43% on a bearish evening star that extended the indicators further into overbought territory.  But it also brought us right back into the rising RTC, canceling yesterday's bearish setup.  Still, the evening star is a powerful reversal pattern, so combined with the indicators, I'd say we've got a shot at moving the dollar lower on Thursday.

Euro: There's more clarity in the euro chart.After dropping almost to its 200 day MA today, the euro reversed course and has been gaining since 2 PM Wednesday, now up 0.17% i the overnight.  This move was enough to cause RSI to start rising again from oversold and set up the stochastic for a bullish crossover.  It's looking good that we might see the euro move higher on Thursday.  That meshes well with the idea of the dollar going lower.

Transportation: After bouncing around for thee days the trans finally settled down, dropping just 0.06% today on a narrow spinning top reversal candle.  The indicators are quite oversold now and tomorrow's candle will produce a bullish setup as long as the trans can remain above 4893.  The trans do seem to be finding some support at the 4900 level.

Jesse's take on gold
Chart of the Day: Today I bring you a daily gold chart from one of the blogs I follow, Jesse's American Cafe  Dude - ya got enough lines on that chart?  I'm not entirely sure quite what to make of that but my take is that gold just fell out of its daily rising regression trend channel from August 15th and is going lower.  What are all those lines anyway?

Anyway, since gold is highly correlated with the market as a whole, this doesn't look good.  Here's a YTD chart of the SPX vs. GLD.  The correlation isn't perfect of course, but the major trends are all there.
SPX (blue) vs. GLD (red)

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  7      5      5           0        .583     -42

     And the winner is...

Despite a weak looking Dow chart and a questionable VIX, tonight we're getting some good vibes from the futures and the currency market.  The euro in particular has been doing a good job of providing short term guidance lately and its saying we're going higher so that's my call: Thursday higher.

Oh yes, and although gold looks to be in a medium term downtrend, it put in a hammer today, indicating it could go higher on Thursday, another good sign.  I still think we're in for some bearish action next month, but I don't think it will come tomorrow.

ES Fantasy Trader

Portfolio stats: with no trade last night the account remains at $180,875 after 65 trades (50 wins, 15 losses) starting from $100,000 on 1/1/12.  Tonight we're standing aside again because we've already had a decent move to the upside and although I think the market's going higher Thursday I don't want to end up in one of these situations where I lose money anyway because I got in too late.  So regrettably I'll just have to watch this bus recede into the distance without me.

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.


  1. Michele-

    Proper caution isnt glamorous or dramatic but it has to be about 80% or so of success, long-term, in the investment arena.

    As of 10:30am ET the SPY is right about where it was about the middle of the second week of September, just before Bernanke's announcement.

    This market has chopped up short term traders who have attempted to be aggressively directional. It takes great discipline to look over and pass on tempting "opportunities" which don't meet stringent criteria. Like in baseball, sometimes one needs to take marginal pitches, waiting for the good "setup" pitch.

    ps. Rails are still acting doggy, emerging markets are starting to outperform IWM.

  2. It has indeed been a difficult month to trade. I note all the warning signs you mention, along with other, like gold and various economic statistics. And yet I'm seeing more short term bullish signs than bearish. I think we may be in for more choppy action all the way until the election.

    And you're quite right - the best thing I ever did in my trading career was to learn the art of patience. I found that the less I traded, the more money I made. And Mr. Market has been pitching more balls than strikes lately.


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