Thursday Higher If ES Pivot Holds

• Thursday higher if ES pivot holds, else lower.
  
• ES pivot 1685.67. Holding above is bullish.
• Friday bias uncertain technically.
• Monthly outlook: bias higher.
• ES Fantasy Trader standing aside.

Wednesday was a textbook example of how a conditional call works (click on chart to enlarge). Note how ES wandered around above the pivot (black horizontal line) in the wee hours until 10:20 AM when the bears marshaled their forces to take a stab at punching under. This is right in the crucial mid-morning do-or-die area.


That failed. The following candle shows another attempt but this time on much lower volume. That failed too. And that's all it took. After that it was just up, up and away, and the market closed higher. This trick doesn't always work, but when it does it's pretty cool.

The pivot point is so important. This is just one of many, many things I learned about trading from reading Dr. Brett Steenbarger's wonderful TraderFeed blog.

9/11

And also, let us not forget that today is 9/11, a date that like December 7, 1941, will live in infamy. And let us further not forget that while the original perpetrators of this dastardly act of cowardice may be dead and gone now, their evil beliefs, driven by a religion of unspeakable hatred, mindless bigotry and intolerance, live on. Just a word of warning...

So now let's truck on to Thursday and make some money.

The technicals (daily)

The Dow: So the Dow has now given us a three white soldiers, and a bullish-enough pattern, though it did hit its upper BB at 15,300 and then some on Wednesday. RSI is now very overbought at 92.25 but the stochastic crossover is taking its time in forming a bearish crossover. We remain solidly in a rising RTC and until I see some more stars align, I can't call this chart lower yet.

The VIX: Last night I wrote "This chart overall continues to look bearish" and I'm glad I did because on Wednesday the VIX fell another 4.89% on a big red marubozu. That 200 day MA break gets 'em every time. So this keeps us well within the falling RTC and with no support until 13.50, there remains at least a bit of room to run lower here. NB - the lower BB isn't until 13.19.

Market index futures: Tonight all three futures are mixed at 12:47 AM EDT with ES down by 0.04%, YM down 0.03% but NQ up 0.04%. So we're basically flat, which is less positive than we've been at this hour the past few nights. That said, ES has now given us a bullish three white soldiers like the Dow, remains in a rising RTC, and also hit its upper BB at 1688 (which also happens to be a resistance line) on Wednesday. Indicators are now overbought to near the point of being broken, ie. losing their predictive power. So the overall gestalt of this chart remains bullish, but the incipient failure of the overnight to follow through makes me think we're running low on gas about now.

ES daily pivot: Tonight the pivot rises once again from 1678.25 to 1685.67. Just like last night, we were above all day and remain above the new pivot even with this jump but again just about by the same small amount. So the same observations hold: this remains bullish until ES dives under the pivot.

Dollar index: Last night like the VIX I wrote "this chart continues to look bearish", and just like the VIX, I"m glad I wrote that too as the dollar slid .0.36% on Wednesday. The indicators continue to fall, we're now in a steeply descending RTC and there's no support til 55.56 (remember, this is $USDUPX). So I see no sign of a turn-around on this chart tonight.

Euro: After Tuesday's bullish RTC trigger, Wednesday delivered the payoff as the euro piled on more gains to fiish at 1.3310. Indicators are now oversold but not overly so, and a new rising RTC is intact. So in the absence of any bearish signs, I'd have to say we could see further gains here on Thursday.

Transportation: In a perhaps telling bit of divergence, the trans gained just 0.03% on Wednesday to the Dow's big 0.89%. And they did it on a hanging man. And RSI is highly overbought at 97.6 now. And we closed above the upper BB. And we popped out the left side of the rising RTC, an unusual move that sometimes presages a pullback. All that's missing is a bearish stochastic crossover but right now the bull case for the trans is getting pretty weak.



When the basic technicals start giving reversal warnings but nothing happens, I like to go check out my other favorite charts: the NYSE Hi-Lo index and the AD line. And right now the Hi-Lo is stuck on 100, so no reversal sign there. And the AD line has been putting in higher highs and lower lows for seven sessions now, so no reversal there either. And Thursday is historically quite bullish. Finally, the Morningstar Fair Value index now stands at 1.02, overvalued to be sure, but still below dangerously high levels that precede breaks lower.

But because we have just now hit some resistance lines and Bollinger bands, and because the futures seem to be petering out in the overnight so far, I'm a bit wary of making an out and out bullish call. On the other hand, the bear case is still not particularly strong. So given all this and the proximity of ES to its pivot and the similarity of the situation to last night, I'm just going to make another conditional call - same rules: if ES manages to stay above its pivot of 1685.67 by mid-morning Thursday, we close higher. But if it breaks under decisively before then, then we close lower.

ES Fantasy Trader

Portfolio stats: the account remains at $108,500 after 15 trades (11 for 15 total, 6 for 6 longs, 5 for 9 short) starting from $100,000 on 1/1/13. Tonight we continue to stand aside.