Friday lower

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

• Friday lower, medium confidence.
• ES pivot 1319.42.  Holding under is bearish..
• Next week bias higher technically.
• Monthly outlook: bias down.
• ES Fantasy Trader going short at 1313.75.

Recap

Last night I was sufficiently uncertain about today as to not make any official call on market direction.  As it turns out, the market was somewhat ambivalent too, with the Dow gaining 46 points but both the SPX and Nasdaq trading lower.  One good thing - today's action cleared the air a bit as we shall see in reviewing the charts for Friday.  Read on, McDuff!

The technicals

The Dow: On Thursday the Dow gave us a classic inverted hammer.  This is a reversal signal but one that requires confirmation.  Meanwhile all the indicators continue to rise from oversold levels with the exception of RSI, which declined a bit today leaving us with sort of a mixed picture.  I didn't like the way the action played out today, with all of the gains coming literally in the first two minutes of trading, and then going mostly downhill from there.  This chart gives me the impression that the Dow is running low on gas.

The VIX:  While the VIX dropped 2% today, it did it on a green gap-down candle.  Unfortunately, there's not much I can make of this chart tonight.  There's no real reversal indicators yet and we're stuck in that gray area midways between the BB's.  The futures look pretty much the same, so not much help there either.

Market index futures: All three futures are in the red at 1:30 M EDT with ES leading the way lower, down 0.53%.  Today's inverted tomahawk pattern warned of a reversal and the overnight seems to be confirming that so far.  This is a bit of a concern considering that the indicators have not yet reached overbought levels.

ES daily pivot: Tonight the pivot jumps from 1304.75 to 1319.42.  Add in that ES has been drifting lower in the overnight and we broke under the new number right at midnight by a non-trivial amount - a bearish sign.

Dollar index: The dollar gapped down 0.33% today to form 2/3 of a morning star.  If it moves higher tomorrow, that will be a good indication of a bullish reversal and that would be bad for stocks, assuming the dollar resumes its inverse correlation here.

Transportation: The trans meanwhile dropped just 0.13% today but did it on a tall gravestone doji that caused RSI, momentum, and OBV to move lower.  I would not be surprised to see more downside here on Friday.

History: Reminder: I am no longer quoting the daily historical assessment from The Stock Traders Almanac. I'll still factor their numbers into my forecasts, but I can't continue to print their data on a daily basis. 

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting average points trade
April   7      9      2                        .438
May    10      7      3           2            .632
June    4      0      1           0           1.000        +313  +$249
     And the winner is...

I don't know - I'm afraid that tonight I'm just not feeling the love.  I think yesterday's enthusiasm was sort of overdone and we may be in for a bit of a retracement here, so I'm calling Friday lower and will be buying some DOG at the market open.

ES Fantasy Trader

Portfolio stats: with no trade last night the account remains at $144,125 after 42 trades (33 wins, 9 losses) starting from $100,000 on 1/1.  Tonight we go short at 1313.75, again in an early evening time frame.

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.  Deal with it.

Thursday uncertain

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

• Thursday uncertain.
• ES pivot 1304.75.  Holding above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

Wow - speaking of "to the moon, Alice", today the Dow rocketed up 287 points giving it its best day of the year (and my best day too).  But I do have to wonder if a move of this magnitude was justified.  George Soros did not announce that he was paying off all of Greece's debts.  Obama did not make a speech where he finally admitted he was unqualified for the job and so was resigning.  No, this rally seems to have been based mostly on hopes and expectations, neither of which is an investment strategy.  So it's back to the charts to do some lie-detecting tonight.

The technicals

The Dow: I did a quick count of the number of times we had a big up day in the Dow back to the end of 2009.  I found 20 of them.  14 times, the next day was either a doji or lower.  The other six were higher.  None of those six were more than a third of the previous day's big move.  So on that basis alone, I'd say we're more likely to see a move lower tomorrow than continued higher.  That said, today's jolly giant green candle blew right back through the 200 day MA and set off a bullish RTC trigger, a powerful combination.

The VIX:  After poking back under its 200 day MA yesterday, it was lookout below for the VIX today, dropping a whopping 10.21%.  The VIX indicators are active again and moving down from overbought levels so that suggests more downside to come

Market index futures: The caution I spoke of in the Dow section above is reflected in the futures tonight.  All three are still up at 1 AM EDT but not by as much as last night.  ES is up just 0.15% and is actually onw trending down after peaking at 10:30 PM.  This isn't the sort of pin action that inspires a lot of confidence for the next day.

ES daily pivot: Tonight the pivot jumps from 1279.75 to 1304.75.  With ES almost flat in the overnight so far, we're still above the new number but less than half as much as before.  So it's still postive but, uh, less than half as much.

Dollar index: After a doji yesterday, today the dollar resumed its inverse correlation with stocks, dropping 0.64%.  The bearish RTC trigger played out textbook perfect and there's still more downside to come.  If the correlation holds up that should be a good sign for stocks.

Transportation: Again today the trans outperformed the majot averages with a smokin' 3.02% pop.  This monster candle took out the 200 day MA here too and also broke the descending RTC for a bullish setup.  And for the icing on the cake, we've got a bullish stochastic crossover  And the rest of the indicators have now clearly bottomed at oversold levels.  All very good signs indeed.

History: I'm making another change tonight.  Effective immediately, I will no longer quote the daily historical assessment from The Stock Traders Almanac. I'll still factor their numbers into my forecasts, but I can't continue to print their data on a daily basis.  I'll just urge you to go out and buy a copy of TSTA.  It's not expensive and it's chock full of all sorts of fascinating, useful information.  Every serious trader should have this.  And the disclaimer is that I have no connection with this publication and I don't get any commissions on their sales or anything like that.

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting average points trade
April   7      9      2                        .438
May    10      7      3           2            .632
June    4      0      0           0           1.000        +313  +$249
     And the winner is...

This is a tough one.  There still really aren't any negative signs on the charts tonight  However, historically the market pauses or even reverses after big one day gains and that's what I'm expecting Thursday.  Since I'm looking for a doji day it's hard to call the close as either higher or lower, so officially, there's no call tonight.  Intuitively, I don't expect any major moves Thursday.  I don't think the bull case is necessarily out of gas at this point, but I do think it needs a day to regroup.

ES Fantasy Trader

Once again an early evening entry proved to be more profitable than my usual 1 to 2 AM time frame.  This morning we sold our long for a healthy 18.5 point profit just before lunch.  Reminder - these trades are posted live on Twitter @nightowltrader.

Portfolio stats: the account goes to $144,125 after 42 trades (33 wins, 9 losses) starting from $100,000 on 1/1.  Tonight we are standing aside due to the uncertainty associated with follow-ups to big up days.

SLD    10    ES    false    JUN12 Futures     1307.00    USD    GLOBEX    11:30:53   

BOT    10    ES    false    JUN12 Futures     1288.50    USD    GLOBEX    JUN 5 20:07:40

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.  Deal with it.

Wednesday higher

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

• Wednesday higher, medium confidence.
• ES pivot 1279.75.  Holding above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader goes long at 1288.50..

Recap

Yesterday's turnaround clues paid off today as all three major averages moved higher.  I've given up trying to understand if this move was somehow related to Europe or not.  I'd rather just look at the charts, so let's do it again tonight.

One note of a new feature here.  I've been asked more than once what good my daily calls are and how they could be monetized.  So beginning today, I'm now trading the Dow ETF's based on these calls and posting the results in my "Accuracy" section.  See the details below.

The technicals

The Dow: Today's 26 point gain was good for a fat little doji, the second in two days.  This does indicate support of sorts around 12,100.  And it carried us very nearly to the edge of the latest steep descending RTC.  More action like this on Wednesday will give us a bullish setup, reinforced by a stochastic that's closing in on a bullish crossover.  Even better, today's candle formed a bullish engulfing pattern, which is high reliability.  I'm liking this chart.

The VIX:  There was more encouraging news from the VIX today which not only dropped 5.5% but did it on a solid red candle that cut right back down through the 200 day MA, negating any support it might have provided.  With indicators that remain quite overbought, I'd say there's still room to run lower here which would be good for stocks.

Market index futures: At 1:36 AM EDT, all three futures are in the green with ES up 0.58%.  Today's green candle brought ES right back up over its 200 day MA, canceling the threat everyone was so worried about on Friday.  And the follow-through in the overnight so far is quite encouraging.  And finally, the stochastic has now completed a nice-looking bullish crossover along with the rest of the indicators just coming off oversold.  Technically, this chart looks a lot healthier than just two days ago.

ES daily pivot: Tonight the pivot rises from 1272.17 to 1279.75.  We remain comfortably above the new level, so that's a positive sign.

Dollar index: The dollar continued its decoupling today, gaining 0.3% on a day when the major averages were also up.  This is the third time I've noticed this recently, so I'm going to decrease the importance I attach to this chart in forming my market opinions until I either see the dollar resume its inverse correlation to stocks or establish a solid positive correlation.

Transportation: After two nasty down days, the trans today finally managed to score a decent 0.43% gain on a spinning top.  But that's not a particularly good reversal indicator and they're still stuck in the descending RTC.  At least the recent pullback has brought us to oversold levels, so a turnaround may be coming in the next few days here.

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

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting average points trade
April   7      9      2                        .438
May    10      7      3           2            .632
June    3      0      0           0           1.000        +26   +$47

Starting today, there are two new columns  in this section.  "Points" means how many Dow points I captured with my call.  If the Dow is up 10 points and I called for a higher close, this column would get a +10, and the "right" column would get a +1.  The "trade" column represents how the call would play out in actual trading.  Every day, I take on a 100 share long position with a MOO (Market On Open) order for DIA, the Dow long ETF, if I'm calling for a higher close.

If I'm calling for a lower close, I open a long position in DOG, the Dow short ETF.  All positions are closed when the market closes at 4 PM with a MOC (Market On Close) order.  The resulting P/L is added to the "trade" column.  If I don't make a call for a given day, then obviously I make no trade here.  I think this is the fairest way to do it (actually it was the only way I could think of doing it).

     And the winner is...

Last night I called for a higher market based on the possibility of a reversal.  Tonight, we have more evidence favoring a continuation of the action that started today so I'm going to call for a higher close Wednesday.

ES Fantasy Trader

Today we didn't get quite the move I was expecting, but it's always nice to take a profit even if it's only 1.75 points.

Portfolio stats: the account goes to $134,875 after 41 trades (32 wins, 9 losses) starting from $100,000 on 1/1.  Tonight we go long at 1288.50 on another early evening entry.  One of the things about trading is that when markets change or patterns change, you have to be ready react and change with them.

SLD    10    ES    false    JUN12 Futures     1278.25    USD    GLOBEX    11:01:14   
BOT    10    ES    false    JUN12 Futures     1276.50    USD    GLOBEX    JUN 4 20:05:19 

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.  Deal with it.

Tuesday higher

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

• Tuesday higher, medium confidence.
• ES pivot 1272.17.  Holding above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader goes long at 1276.50..

Recap

It was looking pretty gloomy until a post-lunch rally brought the Dow briefly into positive territory for the day, but they knocked 'em back down into the close thus saving my bearish call.  The S&P admittedly did squeeze out a tiny gain, but my calls are based on the Dow, so that's what counts.

The technicals

The Dow: Although the Dow lost 17 points today, the action wasn't all that bad.  That late afternoon fade fizzled and was unable to move us below the earlier lows.  The net result was a tomahawk pattern.  Don't bother looking it up, it's my own invention.  A tomahawk is simply a hammer with a short upper wick sticking out.  It is a bullish reversal indicator and a sign the bulls may be getting ready to go on the warpath.  I am encouraged too by the fact that there was essentially no follow-through lower after piercing the 200 day MA on Friday.

The pattern in the S&P is similar, but with a doji star.  Recall that last night I said that 5 out of the last 6 times when the S&P broke under the 200 day MA, the next day was lower.  The fact that that did not happen today is noteworthy.

The VIX:  Way back last Saturday I wrote "the VIX rarely spends more than a day or two above its upper BB before retreating".  Well there you have it - after popping to nearly 28 intraday today, the VIX retreated and closed down 2.03% on a Franken-candle that was part doji, part harami, part spinning top.  Add in a stochastic that just made a bearish crossover and that spells lower VIX on Tuesday, good for stocks.

Market index futures: Tonight all three futures are solidly in the green for a change, with ES up 0.41% at 1:13 AM EDT.  Of particular interest is that ES did not tank following Friday's break under the 200 day MA, giving us instead a long doji on the day.  And the overnight action is quite bullish, having taken us right back over the 200 MA at 1276.82.  Clearly the futures traders are liking the news out of Europe today.  I'm not sure that the announcement that you're going to have a conference call is worth a half percent move in the futures but what the heck, I'll take it.

ES daily pivot: Tonight the pivot takes another big step down from 1285.00 to 1272.17.  But that combined with a rising ES in the overnight broke us cleanly above the new number right at midnight.  And ES has continued to drift higher to this point, so that's a positive sign.

Dollar index: And also last Saturday I wrote "the dollar has more downside coming".  And indeed, today the dollar dropped 0.38% on the dark cloud cover payoff.  And significantly, it traded entirely outside the rising RTC for a bearish trigger.  This portends lower again and is also good for stocks on Tuesday.

Transportation: Today the trans extended their losses from Friday , closing down another 1.31% following the 200 MA break.  But this served to reach the lower BB, and enter oversold territory on a hammer.  It's not a great reversal indicator, but the odds are definitely starting to lean that way.  On 5/18, the trans also broke under the 200 day MA from a similar position, and the next day was up big time.

TLT: Today, the TLT had its first losing day in four sessions, dropping 0.79% to form a bearish harami cross.  Not only that, but the indicators started coming off highly overbought levels and the stochastic just formed a bearish crossover.  Remember what I said on Saturday about the TLT going exponential?  This chart is just begging to go lower and that would be good for stocks.

History: According to The Stock Traders Almanac, Tuesday is historically slightly 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  13/16
 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

 21  5/21       30         52        -     1295

 22  5/29       35         42        -     1318

 23  6/4        32         48        -     1278

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 4/30 was right, the S&P now being lower than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 15 for 19.  And of course that means that since I voted with the majority back then, the poll as a whole was also wrong that week.  So with over one third of the year gone the poll's accuracy edges up to 79% YTD. Still pretty good.

This week we see a small drop in bullish sentiment combined with a corresponding increase in bearish sentiment causing the spread to increase to 16 points. So there are still no extreme readings here that might cause us to be contrarian bullish.  For my part, I voted bearish for the fifth week in a row.  However, I am now beginning to see at least a glimmer of light at the end of the tunnel (and hopefully it isn't the headlight of an oncoming train).  I'm thinking the monthly SPX chart may start giving a bullish indication in a month or so.

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting average
April   7      9      2                       .438
May    10      7      3           2           .632
June    2      0      0           0          1.000
     And the winner is...

Tonight the stars seem to be aligning in favor of the bulls.  With some good bullish signs in the charts plus positive news from Europe today, I'm ready to call Tuesday's close higher.

ES Fantasy Trader

Portfolio stats: the account remains at $134,000 after 40 trades (31 wins, 9 losses) starting from $100,000 on 1/1.  Tonight we go long at 1276.50.

CUA (Commonly Used Acronyms)

BB - Bollinger Bands
DCB - Dead Cat Bounce
MA - Moving Average
RTC - Regression Trend Channel
YTD - Year To Date

Monday lower

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

• Monday lower, medium confidence.
• ES pivot 1285.00.  Holding under is bearish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

This weekend we have a split edition of the Night Owl.  See yesterday's post for the main chart analysis.  This post contains only the updates since then.  Monday night we'll resume the usual daily format.

The technicals

Market index futures: Tonight all three futures are, once again, significantly in the red.  ES is down 0.67% at 12:50 AM, although all of that drop happened in the opening hour Sunday evening.  Since then ES has found some support around 1265.  What's really bad though is that while Friday's trading stopped right on the 200 day MA at 1275.92, this evening pretty much just continued lower from there.

Since 2010, the SPX has broken below the 200 day MA from above six times.  Five of those times, there was continued movement lower in the following days.  And although ES is now at oversold levels, there's no sign of a reversal yet.  Its stochastic seems to be trying to set up a bullish crossover, but that's looking still a few days away.

But I would be remiss if I didn't add that on the hourly chart, ES has just exited its descending RTC and that's a bullish setup.  It might be that we've got a bottom around 1265.

ES daily pivot: Tonight the pivot takes a big drop from 1308.50 to 1285.00.  This has the effect of cutting the distance to the new pivot in half, even though ES has moved lower some more.  Of course, that still leaves us 20 points under, which is pretty awful.

     And the winner is...

I was waiting all weekend for some European byg wyg to make a grand announcement about how they'd seen the light over there and had a plan to solve their mess, but I guess I waited in vain.  The silence from that direction was matched only by the lack of leadership from Washington, where Emperor Nerobama seems to be more interested in getting re-elected than in saving the global financial system.  I guess somehow I had expected more.  Oh well - everybody back on the elevator.  Going down!  Next stop, the bargain basement.  Monday's going lower again.

ES Fantasy Trader

Portfolio stats: the account remains at $134,000 after 40 trades (31 wins, 9 losses) starting from $100,000 on 1/1.

Because I believe the recent short-term selling has been somewhat overdone, and because the Greeks aren't going to pack up their euro-tents and steal away on a weekday, and everything's looking so oversold, I am hesitant to go short tonight.  On the other hand, there's still no real indication of a turnaround yet so that pretty much leaves me just sitting on the sidelines.

Reminder - you can follow the entries and exits for these trades live on Twitter @NightOwlTrader.

CUA (Commonly Used Acronyms)

BB - Bollinger Bands
DCB - Dead Cat Bounce
MA - Moving Average
RTC - Regression Trend Channel
YTD - Year To Date