Actionable ideas for the busy trader delivered daily right up front
- Wednesday uncertain, bias higher
- ES pivot 1414.00. Breaking above is bullish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias lower.
- ES Fantasy Trader standing aside.
Whoa! When I called today "uncertain" I sure wasn't expecting a 243 point collapse from the Dow, its second triple digit loss in three days. But looking at it another way, we're now back to where we were on September 5th, just over a month ago. And back then 13,102 was looking pretty decent. But that was then and this is now. And tomorrow, well tomorrow is a shimmering mirage in the charts, just waiting for us to grab it and hold it up to the light. So let's get right to it.
The technicals (daily)
The Dow: Today's ugly 1.82% drop actually did a fair amount of technical damage to this chart. We blasted right through support at 13,300, through another support line at 13,180, fell out of a long rising RTC for a bearish trigger, and even moved 100 points below the lower BB. And even after all that, the indicators, amazingly enough, still aren't quite yet down to oversold levels. And on top of that, the 200 day MA is now only 46 points below us. This chart is now beyond ugly, it's downright scary, the worst I've seen all year.
The VIX: As befits a down day, the VIX shot up like a skyrocket today, leaping right over its 200 day MA on a whopping 13.30% gap up that also left its upper BB in the dust. The good news is that the candle is a bearish shooting star, the indicators are now overbought, and today makes three days of hanging around the upper BB without retreating. We've had just one instance in the last two years where the VIX spent more time on its upper BB before falling back. Right now this chart looks really ready to move lower on Wednesday which would be good for stocks.
Market index futures: Tonight all three futures are actually up at 1:15 AM EDT with ES higher by a non-trivial 0.43%. Today's big red candle broke support at 1420 but further support at 1408 held. Meanwhile the indicators continue to decline and are nearly oversold. Also, the current 1412.75 puts us just on the right edge of the descending RTC. Of all the charts tonight, this one looks the most encouraging, though it's still not a given that it will close higher on Wednesday .
ES daily pivot: Tonight the pivot drops from 1426.00 to 1414.00 even. With ES trending higher in the overnight, it pretty much nailed the new level and is now threading around it. So we'll want to watch which way it decides to go by morning. Captain Obvious says higher - good, lower - bad.
Dollar index: It was a day of gaps, with the dollar gapping up 0.43% to close exactly on a two month resistance line at 55.15. However, the upper BB is still waiting at 55.28, we're still in a rising RTC, and the indicators are still not overbought. So the $ is at a critical juncture. It either breaks resistance tomorrow or moves lower. I vote for the latter.
Euro: As the dollar rose, the euro fell all the way to 1.2979 today on a long red marubozu that remains inside a descending RTC. And even at that, we're still not oversold. Nevertheless, we may be in for a bit of a DCB here on Tuesday and the euro is indeed gaining a bit in the overnight, now at 1.2990. But that's hardly a ringing endorsement and we have no real technical turnaround signs here yet.
Transportation: Here's an interesting divergence. On a day where the market was just pounded, the trans were actually up by a healthy 0.85%. This confirmed yesterday's hammer and with a bullish engulfing pattern to boot. Although the indicators are not yet oversold, we've seen other instance this year where the trans reversed higher without that. I'd say they have a good chance at moving higher again on Wednesday .
Accuracy (daily calls):
Month right wrong no call conditional batting Dow
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 5 0 .667 219
And the winner is...
Bellwether IBM failed to rally today as I'd been thinking it might, the Dow is dogging it, and Dr. Copper looks like he needs a doctor right now. Also the TLT is definitely in bull mode right now. But what's nagging at me tonight are the VIX which is giving strong reversal signals, and the rise in both ES and the euro. Also the Dow is now near a series of support lines: 13,100, 13,000, and the 200 day MA at 12,966. So I'm thinking that after such a steep, fast decline, the selling might be exhausted at least temporarily.
On the other hand, I don't really have enough reversal signs to call tomorrow higher, so once again I'll just have to call Tuesday uncertain, paticularly since it's a Fed day and those are always uncertain. But if ES can break above its pivot and no further bad earnings misses come out, we could actually have a positive day. I do think we could have a rally before the end of the week though. The Dow is now very extended from its daily pivot and that can't go on forever. And the VIX effect will kick in too.
ES Fantasy Trader
Portfolio stats: with no trade again last night the account remains at $193,875 after 68 trades (53 wins, 15 losses) starting from $100,000 on 1/1/12. With continuing uncertainty, we're going to sit this one out again.
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.