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- Thursday lower, low confidence.
- ES pivot 1636.92. Holding below is bearish.
- Friday bias uncertain technically.
- Monthly outlook: bias higher.
- ES Fantasy Trader remains short at 1600.25.
Well I am certainly glad I called Wednesday as "uncertain" because I sure wasn't expecting a 200+ point dive in the Dow following Uncle Ben's announcement of basically nothing new. Personally, I think this was a bit overdone but it did throw a few interesting wrinkles into the charts, which we will now attempt to press out.
The technicals (daily)
The Dow: The Dow wasn't doing too badly on Wednesday, holding nicely just above its pivot - until Bomber Ben dropped his payload at 2 PM. Then it went down. Then it went down some more, stopping only because the bell rang at 4 PM. The net result was an ugly red marubozu that crashed right out of the rising RTC for a bearish setup and caused a bearish stochastic crossover. This chart has gone from fairly positive to pretty bad in just one day.
The VIX: What with all the ugly charts out there on Wednesday, here's something really interesting - the VIX rose as you might expect - but only 0.03 points or 0.18%. That's pretty unusual for a 208 point move down in the Dow. And the resulting candle was red, not green. This was enough to turn all the indicators downward. And VVIX, the VIX of the VIX, actually dropped 1.56%. None of this is what you'd expect from a market ready to move lower. In fact, I'd be surprised to see a big jump in the VIX on Thursday after this pattern.
Market index futures: Tonight all three futures are significantly lower at 1:43 AM EDT with ES down by 0.46%. Pretty much the same story on this chart on Wednesday - a big red marubozu causing an exit from a rising RTC for a bearish setup. Add in a bearish stochastic crossover and no support til 1609, and things are looking grim for the bulls.
ES daily pivot: Tonight the pivot drops from 1647.83 to 1636.92. With ES continuing its fall in the overnight, we remain well below the new pivot, a bearish sign indeed.
Dollar index: Last night I wrote "we could conceivably see a bullish exit to this long-running descending RTC in as little as a day or two". It turned out to be one day and in dramatic fashion as the dollar jumped 1.05% on Wednesday. This blasted it right out of the descending RTC for a bullish setup and continued right on through the 200 day MA at 55.77 ($USDUPX). Add in a bullish stochastic crossover and indicators that are now rising but just barely off oversold and you could see further dollar strength into Thursday.
Euro: And the euro took the mirror image move, falling out of its rising RTC with a big red marubozu for a bearish setup. With indicators continuing to fall, a break below the pivot, and the overnight trade off another 0.14% so far, it looks like more downside is possible here on Thursday. That squares with my call for a higher dollar.
Transportation: A similar story to the Dow herewith a big red candle that caused a bearish stochastic crossover on Wednesday. The resistance I mentioned last night was never even tested - it was just down and out. After this turn of events, I'm not sure more downside isn't possible on Thursday.
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. This week I've managed to locate the data that was missing from the week of May 28th, so the chart is once again complete.
Wk.# Week % Bullish % Bearish NightOwl Poll SPX Accuracy Poll
1 12/31 40 48 - - 1402 0/1
2 1/7 47 30 + + 1466 1/2
3 1/14 52 15 + + 1472 2/3
4 1/22 50 21 + + 1486 3/4
5 1/28 44 26 + + 1503 4/5
6 2/5 40 36 + + 1513 5/6
7 2/11 43 25 + + 1518 6/7
8 2/19 21 43 - - 1520 6/8
9 2/25 30 52 - - 1516 6/9
10 3/4 29 39 - - 1518 6/10
11 3/11 41 26 + + 1551 7/11
12 3/18 41 37 + + 1561 8/12
13 3/25 31 38 + - 1557 8/13
14 4/1 38 38 + x 1569 9/14
15 4/8 32 50 - - 1553 9/15
16 4/15 33 50 + - 1589 10/16 9/16
17 4/22 19 63 - - 1555 10/17 9/17
18 4/29 33 58 - - 1582 10/18 9/18
19 5/6 50 31 + + 1614 11/19 10/19
20 5/13 37 37 + x 1634 12/20 10/19
21 5/20 50 25 + + 1667 12/21 10/20
22 5/28 37 33 + + 1650
23 6/3 29 38 - - 1631
24 6/10 38 38 + x 1643
25 6/17 32 40 + - 1627
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. The "Poll" column is how the majority of participants 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 both I and the poll I voted bullish four weeks ago, so we were wrong. Therefore we continue the year with an accuracy of 12 for 21, or 57%. The poll as a whole drops to 10 for 20 or 50%.
This week we hve a split once again, with me voting positive but the majority voting negative. After Wednesday's action, I may be switching my vote next week!
Accuracy (daily calls):
Month right wrong no call conditional batting Dow
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 7 5 5 3 0.667 328
May 3 4 6 4 0.636 85 June 1 5 4 0 0.167 -256
And the winner is...
Somewhat surprisingly, tonight's verdict isn't quite as cut & dried as you might think. While we have a number of good bearish indicators involving the stochastic and RTC exits, there are two significant counter-indicators as work. The first is the VIX which really does not look to me like it's gearing up for a big jump on Thursday. The second is that we're now quite overextended from the daily pivot. Dr. Bretty Steenbarger used to talk about this in his Traderfeed blog, and it often works quite well. Whenever you get too far from the pivot, watch out for a retracement.
OTOH, mitigating this is the fact that we're in June triple-witching week which is historically pretty dismal. So while I'd like to think that the recent yo-yo market would dictate a move higher on Thursday, or at least a DCB, I'm going to have to go with the preponderance of evidence and call Thursday lower, admittedly with some trepidation.
ES Fantasy Trader
Portfolio stats: the account remains at $110,375 after 12 trades (10 for 12 total, 5 for 5 longs, 5 for 7 short) starting from $100,000 on 1/1/13. Tonight we remain short at 1600.25. After failing to get out when the getting was good, I at least held on Wednesday and in so doing managed to chop my unrealized loss exactly in half, thereby turning an unmitigated disaster into simply a disaster. It's still not a good situation, but at least I feel a bit better about it than I did last night. Possibly we can achieve some further improvement on Thursday though it might be a stretch to ever hit break-even.