Tuesday, August 30, 2011

Tuesday weakly bearish

The Hoot
  • Weak bias for Tuesday going lower, bull-bear ratio (below) now 1:1.
  • ES pivot 1196.33. 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 1207.00 at 1:10 AM
The technicals

     Recap

Last night I was pretty sure we were going higher and indeed we did with the Dow advancing a healthy 255 points.  I also thought that increased gold margins would weigh on the metal and GLD did fall 2% today.  I was also right about oil going higher, but wrong that that implied lower stocks.  Tonight we look at the bull and bear cases for Tuesday.  And I'm going to try to make this a bit more quantitative from now on by assigning points to each factor I look at.

Daily Dow
     The bull case

The Dow today completed its double bottom, the one that looked off the table just three days ago, by breaking out above 11,530 (upper horizontal blue line).  With today's close at 11,539, there is no more resistance all the way to  11,896.  Extra points for the fact that the second bottom of the "W" is higher than the first.  Total: +3.

The Dow also remains solidly inside its current rising regression trend channel.  +1.

Then we have the VIX futures (the VIX itself is in the Bear Case below).  They gapped down big today without hitting any support level suggesting that there is room for the VIX to run lower on Tuesday.  +1 for that.

     The bear case

Exhibit A for the bears has to be the VIX.  Here's the daily chart.  Notice how we have fallen back to a strong support level at  32.27 (blue horizontal line).  The last time we were here, on 8/17, the VIX rocketed higher the next day.  Also note how we are on the right edge of a descending regression trend channel, just as we were on 8/17.  Even the indicators are at the same oversold levels.  This all suggests the VIX going higher in a day or two at the most.  Total: 2 points.

Daily VIX
Also, today's advancing volume in the Dow was significantly lower than Friday's.  One for that.

Not much to add to this from the market futures tonight at 1:10 AM.  ES, NQ, and YM are all essentially flat.  ES indicators are all at oversold levels though, with the stochastic (which is the best of the bunch) at the same level the last two big drops came from.  1 for that.

Finally, the dollar index put in a hammer at the bottom of its recent range suggesting it may go higher tomorrow.  That would be bad for stocks. Another 1.

And the winner is ...

It's a tie! It was bulls 5, bears  5 for a bull-bear ratio of 1:1.  I'm going to call this weakly bearish though, simply because the recent advance looks to me to be running out of steam.  I would not be surprised to see the market teeter on the edge tomorrow before going lower on Wednesday instead.  Either way, I'm not looking for any big gains Tuesday like we saw today but tonight is still a tough call.

Ticker Sense

The latest Ticker Sense blogger sentiment poll (see sidebar) came out today and not unexpectedly, the prevailing sentiment has swung bullish by 43% to 29%.  My guess is that this is due to whatever it was that Bernanke said last Friday.  People are counting on the September Fed meeting to pump up the markets, if not the economy.  I think the SPX will be pretty much marking time until then, possibly drifting slowly higher into that.

ES Fantasy Trader

Today's trade was up 10.25 points overnight for a $5125 gain.  Total now $121,125.  6 trades, 4 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.

BOT    10    ES    false    SEP11 Futures     1187.25    USD    GLOBEX    00:41:05
SLD    10    ES    false    SEP11 Futures     1197.50    USD    GLOBEX    11:46:29






4 comments:

  1. Michele-

    VIX today again closed under its (now leveling) 20day EMA and still rising mid-Bollinger Band (20SMA)... the first back to back decisive closes in the lower band since late July.

    Perhaps the VIX will continue to compress back twd its own 50day MAs... as the equity market is showing great resiliency here.

    Overbought markets in the face of clear bad news are of interest, big upmoves come out of such conditions. Same is true of overbought markets when sentiment is very bearish. There is never any knowing whether a scary selloff like we just had in July and early August is actually a great buy oppty, until time has passed, and oppty has as well.

    However, Treasuries and Gold are indicating this is a fool's rush upward, and that this is a market to short the heck out of... but the above sheds caution on that interpretation, imo.

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  2. Hi Daniel, thanks for your comments. We're definitely getting some mixed messages right now. I'm going to have to think carefully about this one. As you correctly point out, we're at a junction point here. I'll have more to say later tonight :-)

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  3. Bearish deliberation pattern, perhaps? We may hover around this level for several more days, but I think it's just a matter of time before the bottom drops out. 1100 has to be tested and odds of it holding appear slim to none. Just my 2 cents.

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  4. I have to agree JT. I'll admit I was starting to think the bulls might have something up their sleeve here but after looking at the usual suspects one by one, I can't really make the case for going higher Wednesday.

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I had to re-enable this stupid illegible word verification thing for comments due to excessive spam. Sorry.