Tuesday, April 16, 2013

Tuesday higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday higher, low confidence.
  • ES pivot 1555.08. .  Breaking above is bullish..
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias higher.
  • ES Fantasy Trader going short at 1576.00.

Ouch!  I was expecting a lower day on Monday, but I wasn't expecting to see my account lose an entire month's worth of profits in one day.  And that was even including an SPXS hedge.  Definitely my worst day in well over a year.  In any event, this changes the picture on the charts, so we now sift through the wreckage for clues to Tuesday's direction.

The technicals (daily)

The Dow: The Dow's 266 point red marubozu on Monday pulverized the rising RTC and confirmed Friday's dragonfly doji in a big way.  (Remember what I said last night about this particular doji?)  But for all the drama, we're still only back to where we were a week ago.  The problem now is that while steep declines are often followed by a DCB or a relief rally, this isn't always the case, particularly when we haven't hit the lower BB.  And right now we're still only halfway to that.  And with a fresh bearish stochastic crossover, this chart looks like it's still got some downside.

VIX daily
The VIXNow this is interesting.  As the Dow ranked, the VIX rocketed for a 43.20% gain on Monday, a move that powered it out of its trading range, through its upper BB and then right on through the 200 day MA all the way to 17.27 where it stopped mostly I think only because the bell rang at 4 PM.  It also gave us one of those rare instances where RSI goes from highly oversold (1.35) to overbought (73.8) in just one day.  And of course we got our bullish stochastic crossover.

But here's the thing - like I always say, the VIX rarely stays at it's upper BB more than a day or two before reversing.  And the higher above it goes, the more likely it is to retreat.  Look at the chart to see what happened the last time, on February 25th, a day that looked a lot like today - big spike up right through the 200 MA.  The next day was lower.  I think the same thing is likely on Tuesday..

Market index futures:Tonight all three futures are significantly at 1:23 AM EDT with ES up by 0.53%.  ES of course gave us a big red marubozu on Monday just like the rest of the market.    But the last two times this year we saw a big one day drop, the next day gave us first a big gain and the other, a small gain.  And with a steady uptrend all evening basically from the minute the bell rang Monday, one gets the impression that this pattern is likely to continue on Tuesday.

ES daily pivot: Tonight the pivot simply dives from 1582.25  to 1555.08.. This is a case of pivot magnetism.  Whenever ES gets too far from its pivot, it tends to be attracted back to it, and we got very far away indeed on Monday.  As I write, ES continues to grind higher ion the overnight and is now less than four points below the new pivot.  Breaking above that in the wee hours of Tuesday morning would be a bullish sign.

Dollar index: And here's an interesting chart - while the other bi charts had big moves on Monday, the dollar gained just 0.12% in an unremarkable move that keeps it well within its latest downtrend.  In fact it looked like a purely technical move, bouncing exactly off its lower BB as it did.  There's not a lot of guidance here, but given the recent pattern, I'd look for a move lower on Tuesday.

Euro: And like the dollar, the euro posted a rather unremarkable drop on Monday in a move that was larger than the preceding three days but not larger than the gain it made on April 9th.  And while it did break out of the rising RTC for a bearish setup, the overnight is actually retracing higher, already back to 1.3080.  That was enough to break above the new daily pivot.  I find the lack of pin action and the pivot crossing both suggest a move higher on Tuesday.

Transportation: The trans got hit even harder than the Dow on Monday, plummeting 3.81% with a tall red marubozu that broke the rising RTC for a bearish trigger, broke support at 6000, and broke through the lower BB at 5903, stopping, like the VIX only because the bell finally rang.  We now also have a completed bearish stochastic crossover.  But since, unlike the Dow, we did hit the lower BB on Monday,  I'd say the odds are better for a DCB or some sort of retracement on Tuesday, given what I believe to be an overdone sell-off.

Accuracy (daily calls):

Month     right wrong  no call  conditional  batting   Dow
                                             average  points

January    5      7      6           3        0.533   -101
February   3      4      5           6        0.692    131
March      5      7      5           2        0.500    121 

April      4      2      3           0        0.667    286

     And the winner is...

Ahem, evidently Monday's sell-off was triggered by the fact (or maybe I should say "fact") that China's GDP grew by 7.7% instead of the expected 8%.  Really?  This was all over a 0.3% miss?  Even assuming you can believe any numbers the Chicoms put up, a 1.79% pounding of the Dow (and the SPX was even worse) seems to be a bit of an over-reaction.  And the overnight futures seem to be agreeing.  My best guess is that the bargain hunters will show up on Tuesday and we'll close with some small gains, so we go out on a limb and call for Tuesday higher.

ES Fantasy Trader

Yes folks, we have a winner.  Last night's short trade worked out well enough, even if I exited a bit prematurely.  But it was a nice result anyway.
Portfolio stats: the account now rises to $98,250 after 10 trades (8 for 10 total, 3 for 3 longs, 5 for 7 short) starting from $100,000 on 1/1/13.  Tonight we stand aside, in fear of the falling knife.

Reminder - you can follow these trades live on Twitter @nightowltrader.

BOT    10    false    ES    JUN13 Futures     1567.50    USD    GLOBEX    12:09:07   
SLD    10    false    ES    JUN13 Futures     1576.00    USD    GLOBEX    01:13:26     


  1. Thank you for the analyst daily.

    Very good trade yesterday. Thanks for sharing.

  2. Thanks! It's always nice to get a call correct but it's even nicer to catch the reversals. Happy trading.


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