Actionable ideas for the busy trader delivered daily right up front
- Friday uncertain but bias lower.
- ES pivot 1400.00. Holding below is bearish.
- Next week bias lower technically.
- Monthly outlook: bias down.
- ES Fantasy Trader standing aside.
When I said "Thursday uncertain" last night, today's action was just what I was talking about. I sure wasn't expecting a 107 point dive in the Dow, certainly not when we're already pretty oversold and had two dojis prior. I simply did not see this move in the charts. Let me take another look to see what Friday might bring.
The technicals (daily)
The Dow: Today's 0.81% drop took the Dow right to the 13,000 psychological support level, after breaking below the lower BB at 13,026. It also generated an unusual bearish stochastic crossover from a low level. We had the mirror image of this, a bullish crossover from a high level back on August 16th - and the next two days were higher. Right now, I don't see any catalyst for a move higher on Friday on this chart. And the weekly chart looks even worse, with two consecutive red candles following a hanging man top and indicators that have all peaked at overbought.
The VIX: Today the VIX not only reached its upper BB at 17.49, but it closed above that level at 17.83, all the while remaining inside its rising RTC. Also, while the stochastic is very overbought, it has not yet even started forming a bearish crossover. I'd say we could see even higher for the VIX on Friday.
Market index futures: Tonight all three futures are up just a hair at 1:30 AM EDT with ES higher by 0.04%. Today's drop in ES broke support at 1403 as well as the rising wedge support line I've been talking about lately. Next support is the lower BB at 1391. Indicators are only just now entering oversold levels. This isn't looking like a chart ready to move higher.
ES daily pivot: Tonight the pivot drops from 1408.17 to 1400.00 even. We were below before and remain below, just not quite as much, but still enough to be bearish.
Dollar index: The dollar gained 0.18% today but remained stuck in its recent range between 56.40 and 56.12 on the $USDUPX. The rising indicators suggest some more upside possible on Friday, but that remains to be seen.
Euro: As the dollar gained, the euro fell a bit but remains stuck in its own range of 1.2580 to 1.2500. After rising most of the afternoon, the euro took a sudden dive just after midnight right back to 1.250, possibly on Japanese industrial production numbers. In any case, being at the lower end of a range that has held for eight days running now, the logical thing would be to guess that the euro move higher on Friday, which would help stocks.
Transportation: The trans continued to underperform today, losing 1.14% compared to the Dow's 0.81% on a tall red marubozu that stopped exactly on the lower BB at 4933. We're now in quite an extended losing streak, 7 of the last 8, and remain firmly in the descending RTC. The only positive note on this chart is that the indicators are now quite oversold, with RSI down to 1.5 and the stochastic looking very close to executing a bullish crossover. The last three times we hit the lower BB here, the next day was a reversal day and we closed higher two days later. And the Dow followed higher in each case too.
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 7 1 .600 -78
And the winner is...
Another night of badly mixed messages. On the one hand, we've got the trans, the euro, and copper (which is now very oversold) supporting a move higher. And on the other, we have the Dow, VIX, the dollar and the ES pivot suggesting continued lower. And on the third hand, we have the futures not suggesting much of anything. But ultimately, none of this amounts to a hill of beans because the only thing that will move the market on Friday is what Uncle Ben has to say. So I close out the month by once again calling Friday uncertain.
However, personally I have a bearish bias right now. I think that unless Bernanke announces free trips to Disneyland for all traders, the preponderence of evidence is to the downside. I bought some SDS today at 14.56 to hedge my longs. I'm also bearish on gold and bought some GLL at 16.30. Keep in mind too that Friday is also the end of the month and is historically bearish anyway. Things will be interesting on Friday, that much I'm sure of.
ES Fantasy Trader
Portfolio stats: the account remains at $166,250 after 60 trades (45 wins, 15 losses) starting from $100,000 on 1/1/12. No trade tonight ahead of the uncertainty surrounding the Hole.
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.