Actionable ideas for the busy trader delivered daily right up front
- Friday higher if ES stays above its pivot, else lower, low confidence.
- ES pivot 1421.75. Holding above is bullish.
- Next week bias lower technically.
- Monthly outlook: bias uncertain.
- ES Fantasy Trader standing aside.
As expected, we moved lower today with the Dow shedding 75 points in a fairly low volume session amid renewed bickering out of Washington over the fiscal cliff. So far, nothing has changed my view that Congress will wait until 11:59:59 PM on New Year's Eve before reaching some sort of agreement, and that will probably consist of doing nothing more than some traditional can kicking. In the meantime, the charts stop here so we might as well look them over.
The technicals (daily)
The Dow: Today's red candle confirmed yesterday's doji and took us entirely out of the rising RTC for a bearish trigger. RSI has now peaked at highly overbought and our bearish stochastic crossover is complete. This chart looks ready for more downside.
The VIX: Today's 3.82% gain in the VIX pretty much was a mirror image of the Dow technically: a big gain that took it out of its descending RTC for a bullish trigger and a bullish stochastic crossover. Those point to a higher VIX on Friday.
Market index futures:The pin action here is a big gutter ball as all three futures are actually up at 1:15 AM EST with ES higher by a non-trivial 0.30%, most likely on strong Chinese manufacturing data. That said, today's red candle took us out of the rising RTC for a bearish trigger and left us with declining indicators and a completed bearish stochastic crossover. Modulo the overnight, this chart looks pretty bearish.
ES daily pivot: Tonight the pivot falls from 1430.58 to 1421.75. After some real roller coaster action into the close and this evening, ES is now wandering about the new pivot, having broken below and then back over even as I write this. Whenever this happens at this hour of the night, often the next day is a key pivot day. Watch this number Friday morning.
Dollar index: The dollar surprised me today by gaining 0.13% on Thursday on a bullish harami. This was enough to take it out of its descending RTC for a bullish setup. However, the indicators are kind of all over the place here, so we need confirmation before calling the dollar higher. Perhaps there's a clue in the euro.
Euro: Last night I noted resistance at 1.3000 for the euro. Well today the euro struggled with that level, giving us a doji, though still remaining inside its rising RTC. But there's no confirmation from the overnight so far as the E continues to rise, now up to 1.3095. And even at that, we're still not yet overbought so I'd say we could see more gains here on Friday.
Transportation: Tonight I announce the discovery of a new candlestick pattern: I call it the devil's pitchfork. It consists of three inverted hammers in a row after an uptrend and it's a bearish warning. And that's what the trans gave us today, even though they managed a 0.14% gain. The close at 5182 was just outside the rising RTC for a bearish setup, RSI is now quite overbought at 86.49, and the stochastic just formed a bearish crossover. That all spells lower in my book.
Accuracy (daily calls):
Month right wrong no call conditional batting Dow
average points
April 7 9 2 .438
May 10 7 3 2 .632
June 8 6 6 1 .600 632
July 11 2 6 1 .857 917
August 8 6 8 1 .600 -78
September 8 6 5 0 .571 -19
October 8 5 8 0 .615 208
November 7 5 5 0 .583 135
December 4 1 1 3 .875 284
And the winner is...
Tonight the daily charts are all looking pretty bearish. The only question now is how much attention this Chinese data will get come morning. From the overnight action in both the futures and the currencies, I'm hesitant to make the straight bearish call I would otherwise do in the face of these technicals. But sometimes the overnight enthusiasm dissipates by morning and the trend reasserts itself. There's just no way of knowing that so I'm going to resort to a conditional call. Hey, if the Fed can tie interest rates to jobs numbers, I can claim that if ES manages to stay above its pivot by mid morning, we're going higher Friday, else lower.
ES Fantasy Trader
Portfolio stats: the account remains at $188,750 after 73 trades (57 wins, 16 losses) starting from $100,000 on 1/1/12. Tonight we stand aside again in view of the conditional call.
Posts
I understand what you mean by the ancient board game of GO being the closest analogue to short term market ‘swing trading’ and/or ‘intraday scalping’. I never learned to play it but a very close friend was a GO master and he and his wife dedicated a small alcove room right off the living room, in their oddly shaped house (partly built into a hill), to be a beautiful GO room, with a japanese silk screen on the wall and soft lighting, with a board and bags of stones always ready on a low table, and two zafu seats for the players and a love seat for any spectators--often their children.
When my friend explained the basics of the game to me, many years ago, it immediately brought to mind analogies to classic Japanese candle analysis, with their common use of Set Theory and territoriality.
I too learned an entire School of cross-market analysis from Dr. Brett Steenbarger and I was glad that you pointed out to a commentor some nights ago how worthwhile the ‘timeless’ articles on his archival site still are, and that it is by no means a defunct site. I loved his core message (as befitted a shrink, as he is and was), that rather than try to “beat” the market we should rather carefully LISTEN to it... but not like some thunderous voice as would come out of a God of Thunder like Thor... but like as a patient on a couch, with lots of conflicted notions and anxieties...
He used (and taught others how to use) psychoanalysis metaphors and techniques to get at symbolic feelings of what the underlying sentiment or ‘skew’ or expectational set of the majority of market participants might be... and then use that to create distance from the perceived consensus and be appropriately guided whether to fade moves, or pyramid positions into them.
Dr. Brett is and was a unique teacher, who gave much wonderful guidance for years and asked little in return and STILL got heckled by yokels if occasionally he guessed the market direction wrong. (But he was also a zen stoic, and practiced samurai discipline, so such gross embarrassments to planet Earth and humanity as a species just made him chuckle. I know I was far more irked by their unappreciative rudeness than he was.)
Keep your eye on the yen. It continues to be the wild card in the pie, to mix metaphors. In the hieroglyphic language of currencies, the Yen usually is the fixed principle of maximum safety. But a 3-year low in manufacturing output or somesuch has sent the Japanese government and central bankers on a crusade to weaken the currency and help exports. So capital is flooding from the Yen crosses and after the dollar the next hiding place is the Euro, making it seem stronger than it probably really is.
The normally stable yen has broken free and is rolling through the currency solar system like a planet X from the cosmo-mythology of the writer Velikovsky. Correlations are getting wiggly and electromagnetic and not normal, and finally WHAT has gotten into the DAX? What could possibly be so wonderful about the German situation that their stock market has needed to go up 15 days in a row? Much is NOT making sense right now, in terms of correlation analysis.