Monday, March 31, 2014

Monday higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Monday higher, low confidence.
  • ES pivot 1850.50Holding above is bullish.
  • Rest of week bias higher technically.
  • Monthly outlook: bias higher.
  • ES Fantasy Trader standing aside.
On uncertainty

Last week we were honored by a visit from Dr. Brett Steenbarger who commented on our occasional use of the call "uncertain" in this blog, here.  When I first started tracking my daily accuracy, it was either right or wrong, higher or lower.  After a while, I realized that sometimes it's not possible to meaningfully call the direction of the market.  Uncertainty comes in three basic forms.

First is the case of headline risk.  No technical analysis can prepare you for an earthquake in Japan or an unexpected Fed announcement.

The second case is when I expect the market to close nearly unchanged - a doji.  Technical analysis can tell you if the market's going higher or lower, but it can't slice finely enough to distinguish between a four point gain and a two point loss.  There's little point in calling such a day higher or lower.

And the third case is when I simply don't have a clue.  It sometimes happens that some of the technical indicators I use are bullish while others are bearish or just in a strange indeterminate state.  Maybe someone else is smart enough to figure out those days, but I'm not so it becomes an "uncertain" call.

But Dr. Steenbarger's comments got me thinking about the ways we can use uncertainty to improve our forecasting skills.  I'll write more about this later this week.  I try to keep the Night Owl short enough to keep from boring my readers to death and I'm afraid we're already over our daily limit.  So without further ado, let's move on.


Last Friday the market remained it its now six day long trading range seemingly unable to break out over 16,380 nor fall below 16,275.  So the big "X" remains firmly in place in our swing trend box as we move on to the first day of a new week and the last day of the month and the quarter.  Should be interesting...

The technicals (daily)

The Dow: On Friday the Dow bounced off its support once again, confirming Thursday's doji with a 59 point gain.  The indecision in my call for the day was reflected in the RSI which rose closer to overbought and the stochastic which continued falling towards oversold.  With an inverted hammer on the books ending smack in the middle of our recent range, this chart is no closer to resolution than it was last Friday.  So we wait some more for some answers.

The VIXnd on Friday the VIX dropped 1.44% to form a perfect spinning top, another candle that requires confirmation.  And yet another day where we touched the 200 day MA, now an amazing 13 or the last 15 days.  So being at the lower end of our recent range  with a rising stochastic and RSi closer to oversold than overbought, it looks like the next logical move is higher on Monday.

Market index futures: Tonight all three futures are higher at 12;41 AM EDT with ES up by a healthy 0.36%.  On Friday ES confirmed Thursday's spinning top reversal with a bullish one white soldier.  And the new candle has opened with a big gap up that was enough to take it just out of the descending RTC for a bullish setup (so far).  It has also formed a bullish stochastic crossover so this chart is now looking decidedly positive for Monday.

ES daily pivot: Tonight the pivot jumps from 1841.00  to 1850.50.  Despite this big gain we remain above the new pivot thanks to  a big gap up in ES as trading opened Sunday evening so this indicator remains  bullish.

Dollar index: On Friday the dollar continued its odd backward march higher, marking the fourth day in a row where it put in a red candle that nonetheless resulted in a daily gain.  This one was a nice hanging man.  So with RSI now just overbought we have a hint of a reversal though I'm not stick my neck out for this one.  It's entirely possible we visit the upper BB, at 54.79 (recall this is $USDUPX) first..

Euro: And on Friday the euro gave us a green hammer after three days of decline that took RSI off oversold.  The new overnight is trading up a bit just outside the descending RTC so there's a hint of a move higher here on Monday, though one that requires confirmation.  The overnight has just broken above its pivot but the trading is pretty flat at the moment.

Transportation: Perhaps the most clear chart of last Friday, the trans gained half a percent with an inverted hammer that confirmed Thursday's regular hammer and caused RSI to bottom at oversold.  The stochastic is now positioned to form a bullish crossover so it looks like further gains a a possibility here on Monday.

Accuracy (daily calls):

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points

January    5      10      6           0       0.333
February   5       2      2           1       0.750    107

March     11       3      6           0       0.786    296

     And the winner is...

The last trading day of March is historically not so hot, but we're now seeing some definite reversal signs in the charts.  I'll note too that Dr. Copper is feeling much better since bottoming on the 20th  and even crossed his 200 day MA to the upside on Friday.  The SPX Hi-Lo index has also moved back to 100.  So all in all I think I'll go out on the limb and call Monday higher.

ES Fantasy Trader

Portfolio stats:  the account remains at $103,000 after the first trade of 2014.  We are now 1 for 1 total, 1 for 1 long, 0 for 0 short.  Tonight we stand aside.  This is one of those nights where the opportunity was right at the open.  By now, I'm afraid the bus has sailed.

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