Friday uncertain

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

• Friday uncertain.
• ES pivot 1317.33.  Breaking under is bearish..
• Next week bias higher technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

Things were looking pretty good for my call for a lower close today until a sudden turn higher in the last 45 minutes of the day that resulted in a 34 point gain in the Dow - for no real reason I can see.  At least I made some money today since I'm always net long to some extent.  (I never trade the first $25K of my account which I hold in reserve to ensure I don't run afoul of the PDT rules).  So let's figure out now where Friday may go.

The technicals

The Dow: The bearish doji/dragonfly doji combination was not confirmed today.  However, today's gains were in the form of a hanging man, which is also a bearish reversal warning.  But it too requires confirmation, so we're no further ahead tonight than last night.  At least we broke over the 12,500 resistance line and that is undeniably bullish as are the rising indicators just exiting oversold territory.

The VIX:  At least I got this part right in calling for a lower VIX Thursday.  We got another 3.5% decline on the payoff of yesterday's bearish RTC trigger.  With the indicators again in motion lower, there's no reason why the VIX can't move lower again on Friday.

Market index futures: At 1:13 AM EDT all three futures are in the red with ES down 0.28%.Today's green candle surprised me by breaking above the 1316 resistance.  However, we're in the process of retracing those gains right now.  This sort of choppy action is hard to figure and reflects the news-driven nature of this market.  Every time the butler to the third assistant secretary of the vice-chancellor in charge of buffing the conference table at the ECB makes an announcement, like say "dinner is served", the market changes direction.

ES daily pivot: Tonight the pivot rises from 1309.58 to 1317.33.  With ES drifting vaguely lower in the overnight we just nicked this level at midnight but bounced off and are therefore still higher.  I outsmarted myself last night by discounting the power of the pivot (we were above it at this time then too).  Staying above the pivot is a positive sign.

Dollar index: Very interesting.  Thursday saw the dollar gain 0.31% while the Dow also went up, almost as much.  Usually, a rising dollar signals lower stocks.  In any case, the dollar is right back in its month-long rising RTC.  This chart shows no indication of it moving lower on Friday.

But the related chart to watch right now is actually the euro, which is now so beaten down I had to go to the weekly chart to find the last time we were at these levels (and that would be the end of June 2010).  The important thing there is that that level is close to the 2010 low of 1.20, which would provide important support and imply a declining dollar soon.  But if stocks can manage to rise even with the dollar rising too, it looks like a win-win.  Or something funny is going on.

Transportation: The trans gained 0.81% today and in so doing confirmed the RSI bullish trigger.  In fact they are now in a new rising RTC.  And along with rising indicators, this chart looks ready to move higher still on Friday.


History: According to The Stock Traders Almanac, Friday is historically just slightly bearish

Accuracy (daily calls):

Month right  wrong  no call  conditional
April   7      9      2
May     8      7      2           1
 
     And the winner is...

This market's got more chops than a kung-fu movie and I'm getting tired of getting whipsawed and just generally beaten up.  With the mixed messages continuing, no clear trend in sight, no end in sight to the news mania, and a holiday weekend coming up, I'm not playing this game.  So no call for Friday.  It's just too tough.  Happy Memorial Day to all.

ES Fantasy Trader

Tonight I dumped last night's short position.  It was looking pretty good the first half of the day.  Then I had to go out this afternoon and run some errands.  By the time I got home the market had rallied and the trade was a loser.  With the long descending RTC done and a bias higher, I decided to pull the plug on it before it got any worse.  Portfolio stats: the account now falls to at $117,500 after 37 trades (28 wins, 9 losses) starting from $100,000 on 1/1.  Tonight we stand aside to avoid more whipsaw.

BOT    10    ES    false    JUN12 Futures     1321.75    USD    GLOBEX  19:47:50    

SLD    10    ES    false    JUN12 Futures     1310.75    USD    GLOBEX  00:45:33 

CUA (Commonly Used Acronyms)

BB - Bollinger Bands
MA - Moving Average
PDT - Pattern Day Trader
RTC - Regression Trend Channel

Thursday lower again

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

• Thursday lower - low confidence
• ES pivot 1309.58.  Breaking under is bearish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader goes short at 1310.75.

 Quote of the Day

"You cannot work 35 hours a week, want to retire by 50 with full pension, have eight weeks of holiday and expect to be bailed out by people who work their butts off either in northern Europe or in China. Life does not work like that."

                      - Johann Rupert, head of Swiss company Richemont, on Greece

Recap

This really was an odd day.  In the eight years I've been trading full-time, I've never seen a day like today.  Oh sure, we've seen plenty of doji days, but never a half-pipe like today.  All morning it was nothing but gloom and doom.  Then suddenly at noon the sun came out and it was up up and away.  Thankfully the Dow finished down a tad so my call for the day was ultimately correct.  What does this all mean?  Read on...

The technicals

Dow 15 minutes.

The Dow: Check this out.  Tonight I officially announce the discovery of a new pattern: the Happy Face day.  Unfortunately, there isn't quite as much to smile about on the Dow daily chart - a classic bearish dragonfly doji.  And with a star doji the day before, I have to wonder if Mr. Dow might not be sporting a frown at this time Thursday.  Seriously.

The VIX:  And we got more funny business from the VIX today.  It went down 0.67% but you'd never know it from the red candle which played out almost entirely above yesterday's green one.  It's not really a classic dark cloud cover, but it does make you think of one.  And declining indicators support the idea of a lower VIX and that would be good for stocks.

Market index futures: At 12:49 AM EDT all three futures are in the red with ES leading the way lower, down 0.34%.  The daily chart is pretty much the same story as the Dow: a star on Tuesday followed by a dragonfly doji today.  And the overnight (so far at least) is confirming that as a bearish indicator by moving lower.  Although the indicators are only just coming out of oversold territory, it's always possible for their trip higher to be cut short in an environment like this when Europe starts up their annual summer theatre.  And note that while the 1316 level has proven to be a ceiling the past three days, there's nothing but thin air below until 1290.

ES daily pivot: Tonight the pivot steps down from 1316.25 to 1309.58.  Oddly enough, this now puts us above the new pivot, but not by much..  Ordinarily, I'd call breaking above the pivot bullish, but because of its proximity and the fact that ES has been trending lower since 10:30 PM, it's not looking too promising.

Dollar index: Adding to the Kafakesque goings-on, today the dollar went straight up, gapped up a jumbo 0.72% in fact.  This was not a smiley face, it was a rocket ship.  Ordinarily, such a move up would tank the market, but it did not.  Hmmm....  In any case, this puts us right back in the month-long rising RTC.  Ordinarily, I'd say this is bad for stocks, but with pin action like this, who knows.

Transportation: The $TRAN, widely viewed by many as a leading indicator of the market, today decisively popped up out of its month-long descending RTC.  That's a bullish setup.  But it formed a hanging man doing it - not a good sign.  And the bullish setup always requires one more day confirmation for proof.  So we'll see how this plays out on Thursday.


History: According to The Stock Traders Almanac, Thursday is historically slightly bullish.

Accuracy (daily calls):

Month right  wrong  no call  conditional
April   7      9      2
May     8      6      2           1
     And the winner is...

I don't really like markets like this because right now they're driven entirely by politics in Europe.  Adding to the uncertainty, we're back to some mixed technical messages again.  But even aside the politics, I'm not liking the combination of a star and a dragonfly doji so I'm going to call Thursday lower.  I'm still not giving up entirely on the bullish RTC breakout in the Dow, but that may have to wait til Friday.  For the time being, the best I can say is that the month-long May downtrend is over.


ES Fantasy Trader

Looks like my decision to pull the plug on my ill-fated long trade last night was a good one, since ES just kept going lower.

Portfolio stats:  the account remains at $123,000 after 36 trades (28 wins, 8 losses) starting from $100,000 on 1/1.  Tonight we go short at 1310.75.

CUA (Commonly Used Acronyms)

BB - Bollinger Band
MA - Moving Average
RTC - Regression Trend Channel

Wednesday maybe lower

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

• Wednesday lower - low confidence
• ES pivot 1316.25.  Holding below is bearish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

Grrrr.  Close but no cigar.  I called for a higher close today and if the market had closed just 2 minutes sooner I would have been right.  As it was, the Dow managed to snatch defeat from the jaws of victory and ended the day down a mere 1.67 points on a late-day sell-off.  But it felt worse than that after having been up 50 or 60 most or day day until 3 PM when, gosh I don't know - I was out shopping for groceries.  Something happened, probably those freakin' Greeks again and down we went.  Oh well, the past matters little here and tonight we focus once again on tomorrow.

One million dollars!

Oh and how about that Face-plant Book today?  Down another 9%.  Boo wah hah hah - best trade I never made.  I just don't get this company.  What is Facebook anyway?  It's a web site.  Just like this one.  They have shared information, I have shared information.  The only difference I can see is that they have a membership that's five orders of magnitude larger than I do.  So if they're worth $100B, give or take a few mil, then I should be worth ... one million dollars!  And so far I haven't exactly been deluged with offers from MS or JPM to buy me out.  But hey, feel free - I'm open to negotiations.  I've even got my ticker symbol picked out: NOT, for Night Owl Trader.

I mean c'mon guys - a hundred billion smackers for a web site?  OK, so they have ads.  I can get rid of all of their ads instantly using the AdBlock Plus add-on for Firefox.  If I want to send photos to my friends, I've got their email addresses.  Drag & drop, click send, done.  Like I said - I don't get it.

The technicals

The Dow: It was fun while it lasted but at the end of the day the Dow left us with a classic doji sitting right at the top of yesterday's close, and a classic case of indecision.  On the plus side, today's action (or inaction) traded completely outside the declining RTC and so that's a bullish trigger.  On the minus side, a doji is a reversal warning and it's not uncommon to see some give-back for a day or two following the exit of a a down RTC like this.  So I view this more as a blinking caution light than a red flag.

The VIX:  The VIX did not really follow through on its bearish RTC setup from yesterday, gaining 2.14% instead on a spinning top just under the recent rising RTC.  Technically, it's still a bearish trigger, but a weak one.  And there's not much help from the futures which are pretty much in the same position - just a lot of indecision.

Market index futures: Same story in the futures as ES put in a doji just like the Dow today.  The only guidance is coming from the overnight, where all three futures are in the red with ES down a non-trivial 0.55% at 1:20 AM EDT.  It's still a bullish trigger, since we're now two days outside the descending RTC. it just doesn't feel like one.

ES daily pivot: Tonight the pivot jumped from 1306.33 to 1316.25.  Combined with ES trending lower in the overnight, we crossed under at midnight which now puts us eight points down - not a good sign.

Dollar index: The dollar today did not continue lower as I was expecting, but instead gained 0.51% to exit an admittedly short descending RTC for a bullish setup.  This move was also enough to send the indicators back up.  Basically, it's not about technicals here right now, it's the politics, baby.  The politics of Europe (not of dancing).

Transportation: The $TRAN chart today played out just like the Dow, albeit ending up 0.1% but with a similar doji.  Just more indecision here.


History: According to The Stock Traders Almanac, Wednesday is historically very bearish.

Accuracy (daily calls):

Month right  wrong  no call  conditional
April   7      9      2
May     7      6      2           1
     And the winner is... 

A very strange night.  There is almost no guidance from any of my usual charts tonight.  So given that I have to fall back on the futures, and they're saying it's likely we'll see a lower close Wednesday.  This is not out of keeping with the idea that exiting this long descending RTC will lead to a rally.  Especially after long declines, it often takes a day or two for the counter-trend to get into gear.  Wednesday may be one of those days.

ES Fantasy Trader

OK, that's it, I'm done.  Tonight I finally gave up on my long-running long play from 1365, cashing out at 1310.75 for my biggest loss of the year - 54.25 points.  Ouch!

Portfolio stats:  the account plummets  $27,125 to  $123,000 after 36 trades (28 wins, 8 losses) starting from $100,000 on 1/1.  While I do think we still have room to run higher, I also think I'll be able to get back in at a lower level.  Nevertheless, tonight we're standing aside in view of all the dojis running around on the charts right now.

Tuesday higher

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

• Tuesday higher - low confidence
• ES pivot 1306.33.  Holding above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader remains long at 1365.00.

Recap

Ha - now that's what I'm talking about.  We finally got the up day I've been expecting for a few days now.  And it was a solid move higher on average volume.  Now of course, the question becomes, was this a one-off?  After all, the Dow has not managed two consecutive up days since April 26th.  Or are we going to see some sort of rally from here?  The charts just may hold a clue.

The technicals

Dow daily

The Dow: We begin with the Dow.  Three notable things here.  First, today's solid green candle compares favorably the recent down days we've had.  This was not some wimpy 20 point blip but a solid 135 point gain.  Second, it was big enough to take us to a close outside the descending RTC for the first time since it began on May 2nd.  That is the classic RTC bullish setup.  One more close outside and we get a bullish trigger.  And last, note the Lazarus Effect as all five indicators have now - finally - risen from the dead, a very bullish sign.  All in all, I'm liking today's chart a lot, something I haven't been able to say in a while now.

The VIX:  After spending an eternity clambering up its upper BB, the VIX finally relented today in a big way, dropping 12.31% back to 22.  It's 200 day MA acted as sort of remote control resistance and we stopped just a bit outside of the rising RTC here.  Close, but it still counts as a bearish setup.  And with its indicators now clearly dropping off their overbought peaks, there would appear to be more downside to come for the VIX.

Market index futures:All three futures are in the green at 1:52 AM EDT, though by smaller amounts than last night.  ES is up 0.15%.  Today's huge green candle in ES took us right to the very edge of the descending RTC, just shy of a bullish setup.  But with the overnight sustaining the gains, we're now outside the channel, a good indication that the downtrend is over, particularly since this one has a strong Pearson's coefficient of 0.971.

ES daily pivot: Tonight the pivot rises (finally) from 1297.00 to 1306.33.  With ES pretty much flat in the overnight so far, we're still above the new value, but now only by half as much.  However, as I write this section, ES has begun moving higher again..  Anyway, it's still a positive sign.

Dollar index: Last night I showed this chart pointing out a possible bearish candlestick pattern.  Sure enough, it was confirmed today as the dollar dropped another 0.24% and as a bonus, closed outside it recent rising RTC.  Just as the Dow gave us a bullish setup, this for the dollar is a bearish setup.  All signs here point to more dollar downside Tuesday.

Transportation: As bad as the trans looked yesterday, that's how good they looked today.  With the Dow up 1.09%, $TRAN was up a giant 2.65%, blasting right back up through the 200 day MA in a big way.  This solid green bullish engulfing pattern looking very promising.  The fact that it came seemingly out of nowhere, chart-wise, is even more encouraging.  A reversal higher when the signs are pointing lower is something to pay attention to.


And as an aside, we note that copper had a good day too, giving us a bullish setup out of its own descending RTC.  Just what the Doctor ordered!


History: According to The Stock Traders Almanac, Tuesday is historically fairly bearish.

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  13/15
 17  4/23       30         48        -     1379  14/16

 18  4/30       44         32        +     1403

 19  5/7        23         50        -     1350

 20  5/14       32         44        -     1353

 21  5/21       30         52        -     1295

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 bearish call on 4/23 was right, the S&P now being lower than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 14 for 16.  And of course that means that since I voted with the majority back then, the poll as a whole was also correct that week.  So with one third of the year gone the poll's accuracy rises to 88% YTD.  Not too shabby.

This week it's interesting to note that while bearish sentiment jumped considerably since last week, bullish sentiment dropped just 2 points.  We are now at the highest bearish reading of the year, not surprisingly perhaps given the price action we've seen this month so far.  Still not quite the numbers I'd like to see for a contrarian bullish call though.  And for the record, I voted bearish once again this week based on my reading of the monthly SPX chart.

Accuracy (daily calls):

Month right  wrong  no call  conditional
April   7      9      2
May     7      5      2           1

     And the winner is...

It seems like every night recently we've been getting mixed messages from the charts - some say up, others say down.  Tonight though, everything seems to be pointing up so I'm going to call for another higher close Tuesday.  I say this with some trepidation since the bears have been so solidly in control all month and after a big gain like today, you might expect some profit taking to follow.  But this reversal has a solid feel to it.  If I was just returning from a 20 year trip to Mars and saw today's Dow chart for the first time, I'd definitely not be wanting to short it.

ES Fantasy Trader

Portfolio stats:  the account remains $150,125 after 35 trades (28 wins, 7 losses) starting from $100,000 on 1/1  Tonight we're once again still holding on to this long at 1365.00.   We're still feelin' the heat and basking in its glow, although we did make back a good chunk of our as yet unrealized losses today.
 

Monday just maybe higher

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

• Monday higher - medium confidence
• ES pivot 1297.00.  Holding above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader remains long at 1365.00.

Recap

Well Friday just gave us more of the same old same old, with the Dow sinking yet again, down another 73 points.  Not even the Facebook hoopla could save this sorry session.  Speaking of which, I'd like to tell you a little market joke.  Here it is:

So what's the joke?  Well this is Facebook's opening day, told in 5 minute candles.  Let's walk through it:

FB is where?

11:30 AM - And they're off!  After pricing at 38, we're out the gate at 42.05.  In the first minute of trading, we hit 45.00 on the dot.  Or maybe we didn't.  With Nasdaq unable to provide confirmations for 30 minutes, who knows what the heck's going on.  We might as well be reading ticker tape clattering out of little glass domes.  Then it's all downhill from there.  Who the heck bought this at 45???

11:45 AM - FB drops right back to 38.  10 seconds later my phone rings.  It's my broker.  The same one who told me a month ago that he had no FB shares for me.  Now he's got some.  You don't say.  I decline.

11:50 AM - Boing! FB bounces off the IPO price back to 41.95 (but no higher) and then starts wandering lower.

2:50 PM - The early worms decide to give everyone else the bird and cash out.  Back down to 38 we go.

3:35 PM - FB finds more support than a pair of carbon steel suspenders.  It trades for 10 straight candles down to exactly 38.00, but not a penny lower.

4 PM - FB closes at 38.15.  The IPO boys made 15 cents.  Everyone else lost money.  Big whoop.

Then there's the odd little ping pong match that occurred in the after hours where it bounced between 38, on the dot and 42, yes, on the dot before closing at 38.42.  What the heck was that all about?

And people wonder why the "average investor" distrusts the markets.  This chart isn't a joke, it's just shameful.  So let us now turn attention instead to some charts that are more meaningful and less manipulated.

The technicals

The Dow:My closing comment on this last week was "no turn-around in sight".  And indeed the Dow continued its relentless march towards its 200 day MA, now just 170 points below us.  And we're still stuck in the descending RTC.  Given its current slope (and there are still no signs of a turn on this chart) we'll hit the MA on Tuesday.  That will be the day of reckoning.  You heard it here first: 12,198.73 is the Dow's Alamo.  If we break that support, heaven help us.

The VIX:  Just as the Dow is marching down to its 200 day MA, the VIX is marching up to its own, at 25.77, just 0.67 up from Friday's close.  That is easily in striking distance for Monday.  If we break above that level it will be bad, very bad.  But if we bounce off, look for an end to the market downtrend.  Monday will tell this tale.  Should be interesting.  I will have my VIX chart front & center on Monday.

Market index futures: There are two bright spots tonight.  The first is that all three futures are up by significant levels at 1:46 AM EDT, with ES gaining 0.48% (NQ is up 0.6%).  But with ES just marching down toward its own 200 day MA (at 1268.66, now just 28 points away) and remaining firmly inside a long descending RTC, why would the futures all be up like this?  Perhaps traders like the vague hand waving emanating from Camp David this weekend or are anticipating some sort of big announcement from our Empty Suit of a president on Monday.  Maybe.  But I've seen this movie before and every time I try to kick this football like Charlie Brown, Lucy yanks it away in the morning.  We'll see.

ES daily pivot: Ah, the pivot.  Tonight it takes yet another drop this time from 1310.83 down to 1297.00.  But with the rally in ES so far overnight and this drop, we are now testing the pivot as I write.  And as I return to this section, ES has now crossed the pivot.  That is a positive development.

Daily dollar ($USDUPX)

Dollar index: The other bright spot in tonight's charts is that the seemingly unstoppable dollar may have finally run its course.  I'm not quite sure what to call this - see for yourself.  This is sort of a cross between an evening star and a bearish two crows.  Whatever it is, it's looking like a top to me.  And note how the indicators have finally come off their "overbought broken" levels, regaining their predictive power.  That points to a lower dollar which would mean higher stocks.

Transportation: But I've saved the worst for last.  Last Thursday, the trans took a big dump stopped only by their own 200 day MA.  But on Friday they just continued down from there, dropping another 1.3% despite glaringly oversold indicators.  This, folks, is bad news indeed.  The last time we broke under the 200 MA from above was August 1, 2011 at 5160 when the Dow was at 12,132 (oddly enough, real close to where we are now).  Seven days later, the Dow closed at 10,720, a 1412 point loss.  That's some scary stuff, eh kids?


History: According to The Stock Traders Almanac, Monday is historically slightly bullish.

Accuracy: 

Month right  wrong  no call  conditional
April   7      9      2
May     6      5      2           1
     And the winner is...

As far as Monday is concerned, all is not as gloomy as it was for most of last week.  The problem is that we're getting some severe mixed messages.  The $TRAN chart is very bad, but there's a sign of hope in the VIX, and the dollar and ES both look quite positive.  So what's it gonna be?  I'm going way way waaaaay out on the limb here and at the risk of being the Owl who cried Wolf, I'm calling Monday higher.  Partly because of the G-8 politics and partly because this streak is just getting much too old to go on much longer.  I just have this feeling about it tonight.

But I will add the usual caveat - if ES has broken back under the pivot by the open, all bets are off.

ES Fantasy Trader

Portfolio stats:  the account remains $150,125 after 35 trades (28 wins, 7 losses) starting from $100,000 on 1/1  Tonight we're once again still holding on to this long at 1365.00.  At this point we're in too deep to get out now.  But perhaps that's the problem.  Maybe I should just throw this trade into the volcano to appease the angry market gods.