Friday, January 6, 2012

Another doji possible Friday, pivot is key

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Friday uncertain, ES pivot is key.
  • ES pivot 1270.25.  Breaking under is bearish.
  • Next week bias higher technically.
  • Monthly outlook: bias up.
  • ES Fantasy Trader standing aside.

Last night I called the market lower and I suppose I was right, if you can call a 3 point decline in the Dow as confirmation.  This market is sort of spinning its wheels in the mud right now.  It won't go down but it's not making any headway either.  Is there a tow truck in the house?  Let's figure it out.

The technicals

The Dow: OK, yesterday we got a hanging man, a reversal indicator.  Today we got no reversal but did get a dragonfly doji, another reversal indicator.  You don't see this too often, but when you do get two reversal indicators following a run up, the eventual resolution is most often to the downside.

The VIX: The VIX put in a second solid red candle today in a classic bearish continuation pattern.  Its indicators have all come off overbought levels too.  With no support until 20.70, today's close at 21.48 still leaves some room to run lower.  And as I've often observed, a lower VIX  tends to predict higher stocks in a day or two at the most.

Market index futures: Wow, three days of reversal indicators and still no reversal.  An inverted hammer, a hanging man, and a long-legged doji.  What's holding this market up?  This evening we find a very similar picture to last night around this time (1:10 AM EST): all three futures down with ES lower by 0.27%.  OBV declining again tonight is another bearish indicator.  Also, the SPX High Low indicator remains quite elevated, having topped 90 for an unusual 11 straight sessions.

ES daily pivot: The new pivot is now 1270.25 and we dropped below it just before 11 PM.  ES tried to retrace but that level is now providing resistance.  This sort of action is bearish.

Dollar index: I haven't mentioned this lately but today was interesting.  The dollar took a big gap up to the exact top of its recent range and very close to its upper BB.  There seems to be more chance of it going lower over the next few days than continuing higher.  That would be good for stocks.

Morningstar Market Fair Value Index: Yesterday the index not surprisingly held steady at 0.89.

History: According to The Stock Traders Almanac,Friday has a slightly negative historical bias.

     And the winner is...

Once again, hard to say.  Just like last night we have two distinct conflicting messages with both the Dow and ES charts looking ready to roll over but the VIX wanting to push the market higher.  We also have unemployment numbers coming out on Friday and if they're BTE, then that could help push the market higher, in other words a replay of today.  And that's my best guess.  I think we're due for lower at some point soon but I'm not seeing any real pressure in that direction right now.

1:30 AM Update: ES just broke above the pivot.  I can't stay up all night watching this, but if we're still above before the open on Friday and get good economic news, we might very well go higher despite all the overbought indicators.  It's also possible that any gains will reverse later in the day on week ending profit taking.

So I'm just going to call for another doji day on Friday.  I don't see a big decline happening.  Boring for swing traders, great for day traders.  That's all she wrote.

ES Fantasy Trader

Today we took a small one point loss to close out our first trade of the year.  I decided just before noon that the trade was beginning to move the wrong way and I didn't want my profit to turn into a loss, especially with the first trade of the year.  That turned out to be a good idea since ES continued to climb the rest of the day.  Portfolio stats: the account is now $100,125 after 2 trades (1 win, 1 loss).

Tonight we're standing aside.  I see no real reason to put on a trade in either direction until we get out of this ongoing narrow range doji situation.

SLD    10    ES    false    MAR12 Futures     1270.25    USD    GLOBEX    02:05:50
BOT    10    ES    false    MAR12 Futures     1271.25    USD    GLOBEX    12:32:30

Thursday, January 5, 2012

Thursday possibly lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday lower, low confidence.
  • ES pivot 1270.17.  Holding under is bearish.
  • Friday bias higher technically.
  • Monthly outlook: bias up.
  • ES Fantasy Trader going short at 1270.25

Last night we were getting some mixed messages  with the Dow looking played out but the VIX looking set to go lower, implying higher stocks.  After some debate, I came down on the bear side and was wrong, as the Dow finished by gaining 21 points.  Turns out the VIX, as is so often the case was the better predictor.  Though admittedly, it was a pretty small range day for all the major averages.  And unfortunately, that kind of action doesn't provide much guidance for the following day.  Let's pick through what meager scraps we can find for clues.

But first, for those of you following my saga on the impending death of Kodak, dramatic new developments today with the WSJ reporting that bankruptcy right around the corner for this beleaguered company.  EK immediately dropped from 65 cents to close at 47 cents.  Things aren't looking good.  All the gruesome details in the post here.

The technicals

The Dow: Today's small gain created a classic hanging man and that is a good reversal indicator.  In addition, the Dow remains quite overbought and OBV is running quite high, all bearish signs. However, we do have some fair support at 12,300 and we've just passed an inflection point in the 200 day MA which has (funally) begun to rise again, a good sign.

The VIX: Following yesterday's small doji, the VIX today resolved the symmetrical triangle I pointed out in the down direction with a big bearish engulfing pattern.  Along with a stochastic that just made a bearish crossover, this sure seems to be guiding lower.

Market index futures: All three are running negative in the overnight with ES down 0.18% at 2:10 AM EST.  Today's ES candle formed a cross between a hanging man and a dragonfly doji.  No matter, both are bearish reversal signs.  OBV has also peaked and is declining in the overnight - I find that to be a good indicator of lower prices to come.

ES daily pivot: Drops tonight from 1274.08 to 1270.17.  Notice how ES traded up from its morning lows just about up to today's pivot, but never broke though.  That's a bearish sign.  But now we're trading right around the new pivot.  In fact no fewer than 9 five minute bars have touched this number between midnight at 2:10 AM.

Morningstar Market Fair Value Index: Yesterday the index bumped up from 0.87 to 0.89, a positive sign.

History: According to The Stock Traders Almanac,Thursday is the weakest day of the week.

     And the winner is...

Arrgh - the Night Owl is pulling her hair, uh, feathers out.  Once again we have both the Dow and the VIX seemingly poised to go lower.  This is quite an unusual situation.  I ought to do a correlation of the next day after the VIX goes down but the Dow goes up.

In any event, I am going to claim that the VIX situation will help temper any declines as well as bolster the argument for a rally by Friday, but the Dow will likely go lower on Thursday.  These mixed message days are really tough nuts to crack. 

I should add that with employment and jobless numbers coming out on Thursday, that could easily drive us higher if they're BTE, and it would not surprise me if they were. We'll see. 

ES Fantasy Trader

Today we took a teensy profit of 1.25 points to close out our first trade of the year.  I decided just before noon that the trade was beginning to move the wrong way and I didn't want my profit to turn into a loss, especially with the first trade of the year.  That turned out to be a good idea since ES continued to climb the rest of the day.  Portfolio stats: the acocunt is now $100,625 after 1 trade (1 win, 0 losses).

SLD 10 ES false MAR12 Futures 1269.25 USD GLOBEX 01:56:47
BOT 10 ES false MAR12 Futures 1268.50 USD GLOBEX 11:57:52


Wednesday, January 4, 2012

Wednesday looking likely lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday lower, medium confidence.
  • ES pivot 1274.08.  Holding under is bearish.
  • Rest of week bias higher historically.
  • Monthly outlook: bias up.
  • ES Fantasy Trader going short at 1269.25.

It was certainly pleasant to see the year begin with a 180 point advance in the Dow.  If nothing else, today's action give us something to chew on as we contemplate where we're headed Wednesday.  As we run down the usual list of suspects one thing is clear: after just one day of trading, we're already at a crossroads.

The technicals

The Dow: Today's high of 12,480 took us above the upper BB at 12,435.  That level proved unsustainable and we retreated to close at 12,397.  This suggests that we could see a pullback on Wednesday, though remember that we have some support at 12,300.  And note that the 12,400 level is also a resistance line from last summer.  Since the Dow has lately been loath to climb its upper BB, preferring instead to bounce off, it's questionable if we have the oomph to follow through from here.

Daily VIX
The VIX: Interesting chart in the VIX today - check it out.  Looks like we're getting another symmetrical triangle.  But which way will it resolve?  If you think we entered from below, at the bottom on December 22nd, then it will go higher.  If you take the longer view from earlier in December, it will go lower.

In any case, today's doji of indecision was accompanied by a stochastic (bottom row) that sure looks like it's going to make a bearish crossover, sending the VIX lower.

VIX futures: Meanwhile the futures dropped exactly to their 200 day MA support line, with their own stochastic bearish crossover.  A breakdown here would strongly imply a lower VIX and higher stocks.  We're really teeterng on the edge here.

Market index futures: We now have ES trading again, and at 2:05 AM EST, it's trading down 0.2%, along with NQ and YM.  Of particular concern is that this drop is forming an evening star pattern and that's a good bearish reversal indicator.  ES, like the Dow hit is upper BB today also, and this big gap up looks like it may be wanting filling.

ES daily pivot: The pivot jumped from 1254.58 to 1274.08 while ES began sagging just before 1 AM.  Now being under the new pivot is a negative for the market.

Dollar index: The buck broke recent support with a solid red candle to the downside today and its stochastic executed a bearish crossover.  A weakening dollar is good for stocks.

Oil: Took a big spike up today, mainly on childish posturing from the Iranians.  Iran is clearly attempting to thread the needle here, trying to act just belligerent enough to jack up the price of oil enough to hurt the West (and help their own bottom line) without bringing down a military strike on them, an action they could not answer, contrary to their comical  North Korean-esque bombast.  Since oil is now 100% politically driven, it has no technical importance.  However, if its price continues to rise above $100, that will clearly act as a brake on any advance in the market.

Copper: Dr. Cu took a big gap up today that looked a lot like the action last November 30th, right down to the stochastic bullish crossover from a high level.  And back then, what followed was three small-range consolidation days.  Will history repeat itself?

Morningstar Market Fair Value Index: On Friday, the index remained at 0.87, so no guidance here.

History: According to The Stock Traders Almanac, the Dow is up 13 of the last 18 years on this day, and it's the strongest day of the week.

Sentiment: It's the start of a new week so once again it's time for the TickerSense Blogger Sentiment Poll.  Today we note that bullish sentiment has increased to 46% while bearish sentiment has declined to 21%.  I find it interesting that the bearish sentiment has decreased more than the bullish view has increased.  You could view that as contrarian bullish.

In any case, there are not yet enough bulls to view these numbers as contrarian bearish.  And for the record, I helped the bull case by voting with them this wee, based on my reading of the monthly SPX chart.  We see there that SPX has emerged from its descending RTC and given a bullish trigger with no resistance until 1366.

     And the winner is...

All things considered, I have to say that despite the historical positives for tomorrow and signs that the VIX could go lower, I'm going to call Wednesday lower.  I'm not seeing much technical motivation to drive us higher just at the moment.  And I note that J-Trader is going short and he's been doing quite well for a long time now.

ES Fantasy Trader

Tonight we put on our first trade of 2012 with a short at 1269.25 at 1:57 AM.  Portfolio stats: we begin with $100,000 after 0 trades (0 wins, 0 losses).  

Tuesday, January 3, 2012

Slight up bias Tuesday

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday higher, low confidence
  • Last ES pivot 1253.25.  New value tomorrow..
  • Rest of week bias higher historically..
  • Monthly outlook: bias up.
  • ES Fantasy Trader reset to $100K.
Short Form

Well here comes 2012, ready or not.  This evening's edition is brief, since we're missing any input from the futures.  I'm also having some computer issues this evening that need to be resolved right away.  Suffice it to say that the earlier European, Australian, and Asian trading all seem to be guiding higher for Tuesday.

With all of the last two weeks charts distorted by light holiday trading as well as the year ending, it's tough to make any informed decisions on that either.  Suffice it to say that we're still looking fairly overbought and more downside in not out of the question for the Dow and the SPX.  The first trading day of the new year is also not favorable historically.

But without any futures, this is really just speculation.  Let's see how Tuesday starts off so we can calibrate our charts to the new year.  Wish I could be more specific but I see no real edge in jumping either way right now.

We'll resume the usual complete analysis Tuesday night.  Happy New Year and happy trading!

ES Fantasy Trader

Today the ESFT account resets to $100,000.  Since ES is still closed for the holiday right now, there is no trade tonight.  Reminder, the main purpose of this section is to prove whether or not my market calls are any good, not necessarily for others to trade from.

Sunday, January 1, 2012

Annual Performance Review

With the end of 2011, it's time to see how the Night Owl did  Here are the numbers for my trading account, my IRA and the ES Fantasy Trader.

Trading Account

My final annual gross return on my trading account in 2011 was -1.15%, my first losing year since 2008 (I was up 30% in both 2009 and 2010).  I missed my basic goal of turning a profit, and also missed my goal of beating the Dow, which ended with a 5.5% gain.  I also failed to beat the3 SPX which finished flat.  I did at least manage to beat the Nasdaq (down 1.8%), the average of US equity funds, which lost 2.2%, and the Eurkeahedge hedge fund index, down 4.1%.

Clearly 2011 was a difficult year.  It was also a learning experience for me, not having encountered this sort of crazy environment since I began trading full-time in 2004.  In many ways, it was harder than 2008 to be a swing trader.  When you have the Dow up and down by 400 points for four consecutive days, it's really hard to make any money swing trading.

And that was part of the problem - I don't like to trade when the VIX is above 20, and the VIX spent nearly half of 2011 above that level.  By the time it broke 30, I pretty much stopped trading entirely.  So I really only ended up actively trading five months this year.  In addition, I was hampered by a failure to play the short side effectively so I missed a number of good opportunities there.

Also, I was hurt by one very stupid trade.  I had bought CSIQ and held onto it while it did nothing but go down.  I finally threw in the towel on that one but the damage was already done.  Without that one realized loss, I would have managed to equal the Dow for the year.


My IRA on the other hand did quite nicely, finishing the year with an 8.67% gain.  The big difference here was that my IRA is more heavily weighted to large cap dividend yielders that were in fashion this year.  I also unloaded almost all my shares in silver (SLV) at 44.50 near the April peak, realizing a nice profit there (I had bought in at 13).

ES Fantasy Trader

And finally, the ES Fantasy Trader.  This ended 2011 with a 34.75% gross gain.  I made 48 trades and had 32 winners and 16 losers, for a 2:1 win/loss ratio.  Commissions came to $1920, leaving us with a net profit of 32.83%.  And recall that I began the ESFT only on August 18th, so these are not full-year numbers.

Recall that the point of the ESFT is to put some substance behind my daily market calls.  I generally enter each trade late at night, usually around 1 to 2 AM, based on my call for the next day and then exit the next day (to be precise, later on in the same day) at some point during the regular session.  Very rarely, I'll hold a trade for a few days if that seems warranted.

So why not do this for real?  First, my trading account won't support the sort of leverage that even one ES contract affords, much less the 10 I trade each night.  IB will let me do it, but I'm just not very comfortable with it.

Second, I sleep better not holding futures positions overnight.  Obviously, just about anything can go wrong while my trade is cooking and I'm sleeping, whether it's an earthquake in Japan or some country in Europe going bust.  And since I don't put any stops on these trades, there's the potential for some really nasty surprises when I get up in the morning.

And third, although I regularly put on short ESFT trades, I don't like going short for real.  I'll admit that's just a purely psychological bias on my part and it's something I think I'll put on my New Year's resolutions list.  Still, it's sort of frustrating that my paper trading did so much better than my for-real trading.

Oh and last but not least, readership of The Night Owl Trader was up by an order of magnitude in 2011 over 2010.  Many thanks to all my devoted readers.