Thursday, June 12, 2014

Thursday depends on the pivot

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday higher if ES stays above pivot, lower if it stays below..
  • ES pivot 1944.50.  Sitting on the pivot is uncertain.
  • Friday bias lower technically.
  • Monthly outlook: bias higher.
  • ES Fantasy Trader standing aside.

The nice part about calling the close as "uncertain" is that you never lose money that way.  The not-so-nice part is that you also never make money.  In this case, the technicals looked pretty bearish to me last night but I was reluctant to commit, having been burned on counter-trend calls more than once this year.  So I decided to play it safe - and let 102 Dow points get away.  But that's all part of the game, so we simply move on to the next inning to see if we can get on base Thursday.  Batter up!

The technicals

The Dow: Gosh darn it - I knew this chart looked bearish.  And sure enough, Monday's spinning top (reversal warning) was followed by Tuesday's hanging man (reversal warning) and bearish RTC exit (that's right), and then to what should have been the surprise of absolutely no one, the Dow lost 102 points on Wednesday.  So that takes care of the rising RTC and leaves the indicators overbought.  Net-net, this chart still looks bearish.

The VIX: Last night I opined in no uncertain terms, "this chart now looks bullish."  And thus it was, with the VIX up 5.55% on Wednesday with a big gap-up spinning top and a completed bullish stochastic crossover..  So it looks like there's still more upside to come on Thursday.

Market index futures: Tonight all three futures are just barely higher at 12:18 AM EDT with ES up just a single tick.  On Wednesday ES gave us a big hanging man after two days of reversal warnings.  Trading entirely outside the rising RTC, this is a bearish trigger.  But note that we've not seen any substantive decline of more than two successive days in ES all year long.  So although the indicators remain overbought, it's not clear how much muscle the bears have at this point.  While Wednesday's sell-off was the largest move in three days, it lacked conviction and the overnight action so far indicates further indecision.  And though the chart remains technically bearish, keep in mind that we haven't had a single instance of more than two consecutive days of declines all year so far.

ES daily pivot: Tonight the ES daily pivot drops from 1948.42 to 1944.50.  With ES more or less flat at the moment, this drop puts it exactly on top of the new pivot.  As I write, ES is trying to decide which side of the fence to come down on.

Dollar index:  I missed the dollar night night though in retrospect I'm wondering why.  On Tuesday the dollar hit its upper BB in a gap up.  Well sure enough, it bounced off on Wednesday for a 0.05% loss, though on a small hammer.  The stochastic is now rising but RSI and momentum are falling so that's a wash.  No call here tonight.

Euro: Last night I was anticipating the end of the euro sell-off, just a bit early though as the euro hit its lower BB at 1.3531 on Wednesday.  But that did drive the indicators oversold and started the stochastic curving over for a bullish crossover.  So I guess I'll just claim again that the selling may be over for now.

Transportation: And finally, last night I wrote "this chart now looks bearish for Wednesday."  Yes indeed, the trans dropped 0.76% in a big red candle that took them just off overbought and completed a bearish stochastic crossover.  So everything now points to lower again on Thursday.


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     12       3      6           0       0.800    431
April      9       3      5           0       0.750    482
May        6       7      6           0       0.462    -67
June       4       2      2           0       0.667    139

     And the winner is...

While the charts look bearish tonight from a purely technical viewpoint, I'm concerned about he "buy the dip" mentality that has come into play in these instances all year long so far.  And with ES sitting right on the pivot point, we have a dilemma.  Accordingly, tonight seems to be a good time to make a conditional call: if ES breaks below its pivot by mid-morning Thursday, we will close lower.  But if ES breaks above the pivot, we close higher.  This play doesn't always work, but it has a reasonable success rate.

ES Fantasy Trader

Portfolio stats:  the account remains at $112,125 after six trades in 2014, starting with $100,000.  We are now 4 for 6 total, 2 for 2 long, 2 for 3 short, and one push.  Tonight we stand aside in the face of uncertainty.

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