Monthly forecasts

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

• Tuesday canceled - again!
• ES pivot N/A
• Rest of week bias higher technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Quote of the Day

"Menschen und Wind, ändern geschwind."

                - Carl Orff, Musikalisches Hausbuch

Recap

Well with nothing else to do tonight and with the markets facing the longest weather closing since 1888 tomorrow, I thought I'd take the opportunity of this rare gift of time to back out a bit and take a look at some monthly charts.  Since the month is nearly over anyway and I don't often get to discuss this (though I do watch these charts regularly) it's as good a time as any.

The technicals (monthly)

The Dow: OK, let's start off with the monthly Dow going back to 2007 just before the all-time high that triggered the Great Recession.

Dow monthly

What stands out right away is how we've been making a series of higher highs and higher lows ince the bottom in 2009.  So far, that trend is unbroken.  We're also about to enter a period of favorable seasonality and the indicators are not at all overbought right now.  If anything, they're headed down toward oversold. That's the good news.

However, note how each leg of the advance has been smaller than the one before.  And I know it's hard to see with all the lines, but we have now fallen completely out of the rising RTC marked "2009-11".  That's a big one and we now have a bearish setup.  And the candlestick for October is now almost complete, and it's very very close to being a bearish engulfing pattern.

Overall, this chart's not looking particularly healthy, but it's also not signaling imminent disaster either.

Euro monthly

Euro: Now here's an interesting monthly chart.  Just going by the past month, the euro seems to be in quite the funk.  But looking at the monthly chart, we see that the big E has been trading in a range from around 1.2250 to 1.5000 for about four years now.  I've drawn three regression trend channels on this chart for each downtrend in that time.

Notice how we just exited the last one in September - that's the bullish setup.  And while October looks like an inverted hammer, it's entirely outside (and higher than) the RTC.  That's the bullish trigger.  Ergo, there is a 95% chance that the current downtrend that began in May 2011 is now over.  Don't believe it?  Look at the other two RTC's.  You exit the RTC, the trend is over.

The indicators are also all rising off oversold but nowhere near overbought yet.  Of course this doesn't mean we're going straight up, but it sure seems to suggest that the euro could head back to the 1.50 neighborhood over the next few years, assuming it's not derailed by politics.  And that would be good for the market.

$TRAN monthly

Transportation: And here's another interesting chart.  There's been a lot of hand-wringing lately about the relative underperformance of the trans.  But when we back out to the monthly chart, it actually doesn't look that bad.  True, we've been in a slow drift lower all year long, but that still leaves us well above the midpoint of this chart, going back five years.

Even if you chop off the whole 2009 bottom as an outlier, we're still pretty well off.  And look at the stochastic (bottom chart).  It has now reached oversold levels and is flattening out in preparation for a bullish crossover.  And the October candle is actually green and a bullish engulfing pattern.

So while it's too soon to call an end to the trans' decline just yet, it looks like it may be due for a turnaround in a few months.

Sentiment: Hurricane or no hurricane, 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  20/34

 35  8/27       39         29        +     1411  21/35

 36  9/4        31         38        +     1407  22/36

 37  9/10       54         29        +     1438  23/37

 38  9/17       63         22        +     1466  23/38

 39  9/24       52         30        +     1460  23/39

 40  10/1       39         39        -     1441  24/40

 41  10/8       52         34        +     1461

 42  10/15      41         32        -     1429

 43  10/22      38         41        -     1433

 44  10/29      36         43        -     1412

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 10/1 was correct, the S&P now being lower than then. I'm using the column "Accuracy" to track my calls.  So now with 9 weeks to go in 2012, I'm 24 for 40 or 60%.

This week I voted bearish again for the third week in a row mainly because we now have a bearish trigger on the weekly SPX RTC.  While the monthly charts seem to suggest that the world may in fact not be coming to an end, it looks like the shorter term outlook's not so hot.


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  8      6      5           0        .571     -19
October    8      4      8           0        .667     219  

     And the winner is...

blowing in the wind...  Menschen und Wind...

ES Fantasy Trader

Portfolio stats: with the markets closed the account remains at $193,875 after 68 trades (53 wins, 15 losses) starting from $100,000 on 1/1/12.  No trade tonight.