Tuesday lower

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

• Tuesday lower, low confidence.
• ES pivot 1430.08.  Holding below is bearish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias uncertain.
• ES Fantasy Trader standing aside.

Recap

I was looking for lower today and got it, with the Dow dropping 52 points in a slide that accelerated into the close.  With more event risk on the horizon surrounding Europe and expectations of what Uncle Ben might have to say on Thursday, this is going to be an interesting week.  I don't have a bug in the Fed's meeting room, but I've got the next best thing - a bunch of charts that I will now tap into for clues as to where Tuesday may go.

The technicals (daily)

The Dow: Today's red candle was a big bearish engulfing pattern against yesterday's spinning top.  It also drove RSI lower from overbought and lifted the stochastic into a position to begin forming a bearish crossover.   With a second failure to break 13,320, I'm not feeling the love from this chart. 

The VIX:  Last night I wrote "the VIX could run lower again on Monday" but the VIX did not cooperate as it instead gained a whopping 13.21% to form a bullish engulfing pattern that also popped it right out of its descending RTC for a bullish setup.  And the stochastic moved into position to begin forming a bullish crossover.  So from looking lower, the VIX now looks like it's moving higher on Tuesday.

Market index futures: Tonight all three futures are down at 1:14 AM EDT with ES lower again by 0.30%.  Today's red marubozu kept ES inside the now shrinking rising wedge I've been talking about, from the upper resistance line to near the lower support line.  The continued decline in the overnight has actually now broken the support line at 1424.64.  Whether this represents  another fake out breakdown like we saw last week or if this is the "big one" is hard to tell at the moment, though I'd vote for the former.  Of more immediate concern is that the stochastic just completed its bearish crossover.  If 1424.64 can't be recovered, next stop is 1416.  Either way, I'm not liking the looks of this chart tonight.

ES daily pivot: Tonight the pivot drops from 1435.83 to 1430.08.  With ES continuing to drift lower in the overnight, we're still about the same amount below the new number as we were before, not a good sign.

Dollar index: Last night I wrote "we could see the dollar move higher before mid-week".  And while the dollar did gain 0.14% today, the resulting doji wasn't the move but rather an indicator of the coming reversal.  With the indicators driven even further into oversold territory, I'd look for further gains in the dollar on Tuesday.

Euro: The euro on Monday was unable to break above Friday's highs and never managed to attack the 200 day MA before retreating with a bearish dark cloud cover.  Further declines in the overnight, along with a highly overbought RSI and a stochastic that just executed a bearish crossover tend to confirm that a short-term top is in for this currency.

Transportation: Last night I wrote "no reason to believe the trans won't go higher on Monday." and in another interesting divergence, the trans in fact gained 0.52% today even as all three major averages were lower.  And even with that, we're still not quite into overbought levels on the indicators.  But today's gains stopped just short of the 200 day MA now at 5122, suggesting that we may run into some resistance here before too long.  It looks to me like Tuesday may be a topping day for the trans.

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

 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  18/32

 33  8/13       43         21        +     1406  19/33

 34  8/20       46         31        +     1418

 35  8/27       39         29        +     1411 

 36  9/4        31         38        +     1407

 37  9/10       54         29        +     1438

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 8/20 was right again, the S&P now being higher than then. I'm using the column "Accuracy" to track my calls.  So now I'm 19 for 33.  For the record, I voted bullish again this week based on my reading of the SPX monthly and weekly charts.

This week was quite unusual.  We got the biggest jump in bullish sentiment of the year so far, from 31% to 54%. This is also the second highest reading of the year.  Bearish sentiment also declined substantially, giving us a 25 point spread, the highest reading YTD.  Nevertheless, this still doesn't represent a gap large enough to be contrarian bearish, in my humble opinion.  That said, I do think we're in for a break by the end of next week so I may be changing my vote to negative soon.

 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 2      1      2           0        .667      -3

     And the winner is...

Tonight the charts seem to have a fairly consistent negative bias to them so I'm just going to come right out and call Tuesday lower.  But I don't think it's going to be as big as loss as it might otherwise be because I believe we're heading into holding pattern mode ahead of European news and the Fed announcement this week.  This should put a damper on any major excursions and would also square nicely with the position of ES relative to the rising wedge it's still in, as mentioned above.

ES Fantasy Trader

Last night's trade played out well enough, although I was somewhat surprised that the weakness I expected didn't kick in a bit sooner.  Anyway, it was good for 5.25 points.  Why did I get out when I did?  First, these trades are designed to be shorter rather than longer, so if I have a reasonable profit in one day I'm inclined to book it, just to reduce my risk.  Second, we have a bunch of news coming out this week from both Europe and the Fed, so I don't want to hold these trades for very long.  And last, I think that even if there's more downside to come, the current move is already more than half over which makes the risk/reward ratio too high for my taste.

Portfolio stats: the account now rises to $178,125 after 62 trades (47 wins, 15 losses) starting from $100,000 on 1/1/12.  Tonight we stand aside for the reasons in the previous paragraph.

BOT    10    ES    false    SEP12 Futures     1428.25    USD    GLOBEX    16:04:42

SLD    10    ES    false    SEP12 Futures     1433.50    USD    GLOBEX    01:53:14


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.