Actionable ideas for the busy trader delivered daily right up front
- Friday uncertain..
- ES pivot 1405.33. Holding below is bearish.
- Next week bias higher technically.
- Monthly outlook: bias up.
- ES Fantasy Trader standing aside.
Ouch. That's what I get for trying to second-guess the market. Instead of a gain, we got the biggest drop in the Dow since July 20th, cratering 115 points as worsening unemployment numbers trumped housing news and anything out of Europe. Doh! Chalk this one up to the What Was I Thinking department. Oh well, let's just move on and see if I can do any better for Friday.
The technicals (daily)
The Dow: Today's big dump took the Dow outside the left edge of the descending RTC, which is fairly unusual and can sometimes signal that a trend reversal is on the way. It also brought the indicators very near to oversold and put the stochastic into a perfect position from which to start forming a bullish crossover, probably in a day or two.
The VIX: I blew this one too. Yesterday's spinning top was canceled in resolute fashion today as the VIX piled on 5.63% to clearly establish a new rising RTC. Indicators are now near, but not quite to overbought levels, so at least a bit of upside might remain here on Friday.
Market index futures: Like last night, tonight all three futures are up a bit at 1:24 AM EDT with ES higher by 0.07%. It looks like I ignored the RTC at my own peril last night. After yesterday's candle gave us a bearish trigger, today was the bearish payoff with a tall red candle for ES that took it right back to the consolidation area from two weeks ago. But in so doing, it also pulled the indicators a lot closer to oversold, though we're probably still a day or two away from that.
ES daily pivot: Tonight the pivot drops from 1410.25 to 1405.33. After breaking under the old level just before the open today, we remain below the new umber, but by only half the distance. Once again, I'd keep an eye on the pivot. Had I been up at 8:30 this morning, that would have canceled my bullish call for Wednesday.
Dollar index: Today the dollar gave up another 0.17% on a morning star doji that just touched its 200 day MA. With indicators now well into oversold territory and a stochastic lower than it's been since last April, I'd say we have a chance of moving higher on Friday.
Euro: Meanwhile, the euro continued to rise, although the gains have been narrowing for three days now. And in fact the newly forming overnight candle is now down by 0.06%. And importantly, the stochastic is forming a bearish crossover, implying the likelihood of a lower euro Friday.
Transportation: At least I got this part right when I said "I'm betting on more downside to come here on Thursday". as the trans delivered a 1.03% drop on a long red candle that stopped dead on the 200 day MA. But even this drop was just the bearish trigger and with indicators only now coming off overbought, I'd say we're likely to see lower here again on Friday. It has been the pattern this year that once the trans touch the third rail of the 200 MA, they go lower the next day.
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 7 5 4 1 .615 -67
And the winner is...
I think today's declines kind of cleared the air a bit. The indicators are now right around the levels from which the last five short term bottoms occurred, and there are a few technical signs of a reversal out there too. For example, the NH/NL index hit 43 today. The last time this happened was August 2nd - and the next day was up big.
Mostly because of this, and even though the candlesticks don't show it yet, I am going to guess that Friday will be a turnaround day, putting in some sort of hammer or doji, to be followed by some actual gains in the early part of next week. Because of this, I can only call Friday uncertain. I will add that if ES manages to break above its pivot before noon, that greatly increases the odds of a positive close. I am still holding my SDS, but if we don't continue lower on Friday, I will be getting out.
ES Fantasy Trader
Last night I was toying with the idea of taking a speculative long out on ES. Tonight I'm very glad I didn't.
Portfolio stats: the account now remains at $168,500 after 58 trades (44 wins, 14 losses) starting from $100,000 on 1/1/12. Tonight we're standing aside again, mainly because I think we're too close to a bottom to make the risk/reward worthwhile, but I'm not yet seeing the reversal and I don't want to catch this particular falling knife.
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.