Toppy indicators point to lower Wednesday

The Hoot

• Wednesday going lower, bull-bear ratio (below) now 1:2.
• ES pivot 1205.67. Going under is bearish.
• Rest of week uncertain, market looking toppy.
• Monthly outlook: bias up, all depends on Fed action in September
• ES Fantasy Trader going short at 1202.50 at 7:54 PM

The technicals

     Recap

Last night I was "weakly bearish" on today's action and that's indeed what things were looking - until the Fed Minutes came out, that is.  Apparently, hearing what he already knew was enough to send Mr. Dow on a 48 point run up that ended putting the index in the black by 21 points.  Anyway, since I was expecting a slight decline today and that didn't happen, we're at an interesting juncture now, as an alert reader so aptly noted in a comment to my previous post.

So let's do our nightly rundown of the bulls vs. the bears and see who comes out on top.  Remember, I'm now assigning numerical points to each item, sort of like counting cards in blackjack.

     The bull case

The Dow today sure looked like it was ready to roll over but didn't.  I'm willing to give it a plus 1 for that, although I think the only reason was the Fed minutes.  The bears came out to play in the last 15 minutes but they still couldn't turn the day negative.

The Dow still remains solidly inside its current rising regression trend channel.  +1.  It has also now cleared resistance at the 11,480 level.  There's no resistance until 11,890.  Another bull point there.

Then the market futures are all higher tonight at 1:45 AM EDT.  ES is up 0.21%.  I went short ES earlier this evening and right now I'm regretting it.  A bull point there.  ES is also holding above its new daily pivot, 1205.67.  That's another +1.

     The bear case

Today's Dow candle was a classic doji star (SPX too), suggesting indecision and a potential reversal.  I give 1 point to the bears for that.  The Dow indicators are all quite overbought now and at the same level or higher than those from which the last decline started.  A bear point there.

Next we have the VIX.  As I thought, the VIX was unable to move below its recent support and in fact did close higher by at bit, forming a doji of its own in the process, signaling a potential reversal.  Two points for those.  The VIX indicators are all oversold, and at levels from which the VIX has subsequently rallied a day later.  A point for that.

Then today the VIX futures had their first day higher in six sessions and their indicators are also now at oversold levels.  This also suggests the VIX may indeed be ready to go higher.  Higher VIX, lower stocks.  +1 for that.

 Next, oil put in a double bottom recently and broke above the end of the "W" today, suggesting it could break out soon.  That would be bad for stocks.  Another +1.

Finally, last night I suggested that the dollar index might go higher today.   It did indeed and tonight looks like it's not done yet, having bounced off its support, suggesting lower stocks.  Another 1 for the bears.

And the winner is ...

The bears.  It was bulls 4, bears  8 for a bull-bear ratio of 1:2.  With the market looking subjectively toppy to me and still running out of steam, I'd be surprised indeed to see us go higher Wednesday.  I'm just a bit antsy waiting for this shoe to drop and I hate going against what the futures are saying right now, but you can't argue with the technicals.  With the VIX oversold and finally turning positive today, we're due for a reversal.

ES Fantasy Trader

Today's trade was up 2.75 points overnight for a $1375 gain.  Total now $122,500.  7 trades, 5 wins, 2 losses since inception.

Here are the details.  Again, I enter a trade any time after the close and exit it at some point the next day before the close trying to capture overnight price movement.

 SLD    10    ES    false    SEP11 Futures     1207.00    USD    GLOBEX    01:09:30
 BOT    10    ES    false    SEP11 Futures     1204.25    USD    GLOBEX    11:25:07