Monday, October 14, 2013

Monday lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Monday lower, low confidence.
  • ES pivot 1690.75.  Holding below is bearish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias higher.
  • ES Fantasy Trader remains long at 1695.00.

As I suspected last Thursday night the market wasn't quite out of gas, having enough left in the tank to propel the Dow up another 111 points on Friday.  We now attempt to disentangle the Washington political circus from the technicals in the charts tonight and see where Monday's semi-holiday might be going.

The technicals (daily)

The Dow: Friday's healthy advance gave us a bullish trigger on the descending RTC exit, officially closing last month's downtrend.  The two white soldiers pattern is also bullish and indicators continue marching towards overbought but are not there yet.  In purely technical terms, this chart looks bullish.

The VIXLast Thursday I wrote that the VIX had "plenty of room to run lower on Friday".  And that's just what it did, down another 4.61%.  That move left us with a bearish trigger on exiting the previous rising RTC.  The indicators continue to fall off overbought but are not yet near oversold so this chart continues to look bearish.

Market index futures: Tonight all three futures are significantly lower at 12:25 AM EDT with ES down by 0.72%.  Last weeks big gains were enough to move ES out of its descending RTC for a bullish trigger and while the indicators are higher, they're still not even overbought yet.  Thhe overnight gapped down on the open on news of yet another an impasse down in Clown Town but even that only erased Friday's gains, not Thursday's.  And ES has been slowly drifting higher all evening.  Still, I think the odds of moving back to Friday's close of 1699 on Monday are slim.

ES daily pivot: Tonight the pivot jumps from 1673.58  to 1690.75.  This gain combined with ES's overnight fall put us below the new pivot right at midnight, so this indicator is now bearish.

Dollar index: After last Tuesday's big gap up, the dollar spent the rest of the week putting in reversal candles - but not reversing.  Friday's was an inverted hammer that did manage to close down 0.08%, but there's a lot of retracing left to do.  With indicators near overbought now, I'd say continued downside is a possibility on Monday..

Euro: On Friday the euro confirmed Thursday's doji and closed up at 1.3565.  That move also just gave us a bullish stochastic crossover.  With the overnight trading higher again, I'd say the euro looks good to close Monday higher.

Transportation: The trans continues to mimic the Dow though Friday's 0.56% advance was a bit lower than the Dow's 0.73%.  Still with no resistance til 6675, this chart looks bullish.

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      7      5      5           3        0.667    328
May        3      4      6           4        0.636     85

June       6      5      6           0        0.545    543
July      10      2      4           4        0.875    486
August    11      3      6           2        0.813    687
September  8      3      3           3        0.800    485
October    3      1      3           1        0.800    570

     And the winner is...

Technically, last Thursday and Friday's big moves in the market look quite bullish, but I think they have to be taken with a grain of salt since they were largely due to nothing more than "hope" than the Clowns  in Washington would come to some sort of agreement on the debt ceiling.  With that hope now apparently dashed and the Head Clown's position being "I'm not budging" (a direct quote), it's back to reality for Mr. Market.

The charts that closed Friday all look pretty bullish but the Sunday overnight real-time data is bearish, so I'm afraid I'm going to have to go with that.  Unless some sort of major piece of good news comes out on Monday, like maybe the Emperor and all of Congress announcing they're resigning in shame, it's looking like Monday lower.

ES Fantasy Trader

Once again patience proved to be a virtue.  After taking some not inconsiderable heat on this latest trade, last week's closing rally propelled us (finally) into a profit position small though it may have been.  I decided at that point not to tempt fate any further and got out while the getting was good.  For the time being, that seems to have been a prudent decision.  But I'll take a 1.25 point win over a 20 point loss any day.

Portfolio stats: the account rises to $110,625 after 17 trades (13 for 17  total, 7 for7 longs, 6 for 10 short) starting from $100,000 on 1/1/13.  Tonight we .stand aside.  I don't like nights like this when there's a big gap right off the open.  It calls into question whether or not we'll see retracement or follow-through.  I'll just sit this one out.

SLD    10    false    ES    DEC13 Futures     1696.25    USD    GLOBEX    OCT 11 12:53:21


  1. with 10 contracts, $50/point, and a 50-point intra-hold drawdown on that last trade, that was a -$25,000 intra-hold (un-realized) loss, and a -25% account intra-hold drawdown... to basically scratch a trade due to the mkt rebound. Doesn't sound like a good risk/reward to all-in-all-out like that. Why not scale-in/out? You'll likely do as good or better, with lower risk. And, here's another serious question: With no stops, how many points intra-hold loss before you would have gotten a margin call on that last trade?

    1. " Why not scale-in/out? "

      That's a great question. This is really just another aspect of why these are "fantasy" trades. If I was running that kind of money for real, I'd be paying a lot closer attention to it and doing stuff like just what you're suggesting. But I just don't have the time for that in my already over-committed life. The exercise is simply, "can I make money trading this way, all in"?

      "how many points intra-hold loss before you would have gotten a margin call"

      Here's how Interactive Brokers handles this (from their web site):

      "Maintenance margin for commodities is the amount that you must maintain in your account to support the futures contract and represents the lowest level to which your account can drop before you must deposit additional funds. Commodities positions are marked to market daily, with your account adjusted for any profit or loss that occurs. Because the price of underlying commodities fluctuates, it is possible that the value of the commodity may decline to the point at which your account balance falls below the required maintenance margin. If this happens, brokers typically make a margin call, which means you must deposit additional funds to meet the margin requirement."

      The maintenance margin at IB for ES is currently $1900 per contract. For 10 contracts, that's $19,000. So my fantasy account, with > $100K to start with still has a comfortable "margin" of safety. If my math is right, I could lose ~162 unrealized points before running into margin trouble.

      IB does simulate that in paper accounts, and I have yet to receive a margin call since I began running ESFT nearly two years ago, even after some pretty horrendous unrealized losses. But it's definitely soemthing to always keep in mind. Thanks for bring that up.

  2. Here's a link to IB: On this page, you see that you are only considering 1 of 4 margin amounts:
    1.) Intraday initial $2562
    2.) Intraday Maintenance $2050
    3.) Overnight Initial $5,125
    4.) Overnight Maintenance: $4,300
    Since you are swinging, holding O/N, I think your margin requirement is a bit more. What's not clear to me is if the total margin requirement is the sum of all 4 or just the last 2 (since yer holding O/N). Even if it's just the last two, that's $93,250 in margin.... which would mean (?) that after you are down just $6,750, you have a margin call, no? What am I missing?

  3. Hmm - well it's not exactly clear, is it? I *think* the complete O/N masrgin is simply the $4300. I don't think they add, but I could be wrong. But like I said, I've never gotten a margin call even after being way in the red so I don't think it can be the sum of 1 through 4. The most I've ever traded for real is two contracts and I've never gone deep into the hole with those, so I've never had to deal with this issue before.

    It's a good point though. I'll have to give IB a call tomorrow and get some clarification from them on exactly how this works.

  4. I look forward to your response. Any way you slice, it, though, the leverage you're using here is huge... 10x$50/ptx1710 = $855k... so, nearly 9:1 leverage. ... and no stops.... I can see using no stops if you keep your leverage 2x or less... but at 9:1, you risk blow-out.

    1. Well yes - that's why this is alled "fantasy trading" :-) I have neither the account nor the nerve to pull that off for real!

      Anyway, I just got off the phone with IB. They told me that if you intend to hold a futures position overnight, you need to meet the overnight initial margin requirement to open the position. Then after that, you only need to meet the overnight maintenance margin.

      So those two numbers do not sum - it's just the $4300 per contract. So with 10 contracts starting with $100K, I can take an unrealized loss of $57,000 without running into margin trouble. As it happens, the paper trading account I'm using currently has $165,000 in it because I use it for other trades besides the ESFT so I have even more room to take heat.

      But I see your point - I should probably do the math to keep the ESFT "virtual account" separate from my other paper trades to make it more realistic. But then it becomes a big accounting headache and I just don't have the time to deal with that right now.

      There are obviously other problems with this exercise, for example how the market would react to 10 contracts going by at 1 AM for real when liquidity is much lower than during the day. The whole thing is never going to be 100% realistic.

  5. Thanks for the informative reply. Interesting... the maximum leverage a person can do (overnight) is 19:1 ($100k/$5125). Sounds about right. I always heard that futures were 20:1 leverage. Now we know how that number is arrived at. Of course, with IB recently in the news for cranking up margin requirements at the market low just 10 days ago (jacking them 130% or more on certain stocks), they could always getchya that way. And they've done that before, fwiw, and it has always been at a local low, right when you do not want a margin call.

    I realize the trading account is "fantasy", but it may be more beneficial to you if the leverage were limited to something that you could actually see yourself doing some day. It'd still be a fantasy because the trading is not real.

    I did not realize you were trying to put on 10 contracts at 1am. Liquidity then might be an issue... but probably not much more than a tick or two to hit depth. With the system being less than perfect, however, there's no reason you cannot use a limit order... you'd save slippage that way, and, so far, you'd always have been filled.


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