Wednesday, September 26, 2012

Wednesday lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday lower, low confidence..
  • ES pivot 1443.08Holding below is bearish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias uncertain.
  • ES Fantasy Trader standing aside.

Well we finally broke out of our narrow trading range today and the direction was down.  Frustratingly though, this now raises some new questions: is this the start of a new downtrend that everyone's been waiting for, or was today's decline just clearing the air in an over-reaction to prepare for further upside?  We'll now read the technical tea leaves to sort it all out.

The technicals (daily)

The Dow: The Dow's 101 point dump today took us out the bottom end of our recent trading band.  That alone is a bearish sign.  But it also drove the indicators, which had already been falling, down to oversold levels.  RSI is now down to 19.61, lower than where most reversals have come from this year.  The stochastic though has not yet begun to set up a bullish crossover, so it's still a bit premature to call for a move higher from here on Wednesday.

The VIX:  The VIX had a big day on Tuesday, gaining just over 9% on a strong bullish engulfing pattern.  Even that was only enough to send it off oversold, so there's a distinct possibility for the VIX to move higher still on Wednesday.

Market index futures: Tonight all three futures are actually up at 1:35 AM EDT with ES higher by 0.14%.  Today's big drop here drove ES even more oversold than the Dow.  RSI in fact hit 3.22 today - very low indeed.  The failure to gain any pin action in the overnight makes me wonder if this might not signal a move higher on Wednesday.

ES daily pivot: Tonight the pivot dips from 1450.25 to 1443.08.  With ES essentially flat in the overnight so far, we're still beneath the new pivot, but much closer.  If ES can break above the new number in the morning, that would be a positive sign.

Dollar index: Like yesterday when the dollar moved higher on a red candle, today it moved up just a bit, but on a green candle largely below Monday's.  And this one took us just off the edge of the rising RTC for a bearish setup.  It also propelled the indicators to overbought levels.  This indicates the possibility of the dollar moving lower on Wednesday.

Euro: On the other hand, the euro's recent decline continues unabated. We're gone from a peak of nearly 1.32 just over a week ago to 1.2887 now.  And we're still solidly inside the descending RTC.  The only support in view is the 200 day MA, fast approaching at 1.2837.  That's not out of reach on Wednesday considering the pace of recent daily drops.
$TRAN, daily

Transportation: The trans surprised me today, that's for sure.  After yesterday's big 1% up day, I was convinced we'd go higher again today.  No such luck.  Instead the trans went right back down again by nearly as much, specifically, 0.89%.  This down/up/down action reminds me of last summer when the VIX was above 40.  What are we to make of this yo-yo action?  Not much, I'm afraid.  The only clue here comes from the indicators, which are now quite oversold.  On that basis alone, I'd be inclined to call the trans higher on Wednesday.  We're due for it.  Look at the chart.  We've already bounced off the lower BB.  Usually when we're in a major decline, the candles will just slide down the lower BB.  That hasn't happened here.

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 6      5      5           0        .545     -86

     And the winner is...

I think most of the evidence tonight is pointing to the downside, including the VIX, the trans, and the euro.  However, the bellwether TLT and copper charts are looking like they're getting ready to turn higher so while I'll call for a lower Wednesday, we just might see some upside before the end of this week (even though Friday is the last day of the month and the quarter and is historically quite bearish).  And if not then, then a move higher is more likely next Monday, since that's a historically bullish day.

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 while I do believe we're going lower on Wednesday, I think the majority of the current decline is done and so there's more risk than reward to going short at these levels.

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.

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