Wednesday going higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Wednesday reversal higher, high probability.  Bull-bear ratio is 7:0.
• Wednesday's ES daily pivot 1155.75.  Remaining above this is bullish.
• Rest of week bias uncertain.
• Monthly outlook: bias down, regardless of Fed action in September
• ES Fantasy Trader opened new long position at 1166.00.

     Recap

Last night I wrote "We're going lower on Tuesday".  And so we did in a big way, with the Dow diving right out the gate and down over 300 points by mid-morning.  But interestingly, we then went on to erase most of those losses with the rest of the day actually in an uptrend to finish "just" 100 points down. So where does this leave us for Wednesday? Let's take a look.

The technicals

The Dow: Today's Dow action formed a classic bullish hammer candlestick. This is a good potential reversal indicator. To be conservative, one should wait for confirmation the next day. However, I believe we're getting confirmation of sorts from the futures (see below) tonight, so +1 for the bulls.

The VIX: The VIX had a big 9% gap up today but did it on a long red candle. Because the VIX indicators are still just coming off oversold, I'm hesitant to draw any conclusions here. Tie score here.

VIX futures: The futures also put in a big gap up red candle today. But since they're starting to look overbought and this candle came on a peak that also hit its upper Bollinger band, it's looking to me like we're headed lower, which is good for stocks, so another +1 for the bulls.

Market futures: ES today put in a tall dragonfly doji which is indicative of a reversal.  In the overnight trade, it, along with its fellow travellers NQ and YM are all up smartly, around half a percent.  It's still only 1 AM but ES is forming a green candle next to that doji by way of confirmation.  +1 bulls.


ES daily pivot: The new daily ES pivot for Wednesday becomes1155.75.  Currently at 1 AM EDT ES is at 1171.00, now comfortably above that level.  This is a good spot to be: far enough above the pivot to avoid bumping into it but not so far away as to encourage gravitational attraction.  (In market physics, gravity gets stronger the further away you are).  +1 bulls.

Dollar index: Last night I called the dollar higher and today it scored its biggest gain since May. It blasted right through its upper Bollinger band and is now looking rather overbought. I'd look for the dollar to decline tomorrow. That would be good for stocks. +1 bulls.

Oil: Although oil also put in a hammer today, it's been drifting lower for a few days now from overbought levels. So that's a tie.

Morningstar Market Fair Value Index: Morningstar says today's number is 0.76, which is a huge decline from yesterday.. If this is true (and their web site has been putting up some funny numbers the past few months that mysteriously change the next day) then this is the lowest reading since March 31, 2009, right after the 2009 lows. Taking it at face value, this one goes to the bulls.

History: Not much in the way of history to guide us for Wednesday. No points awarded.

Sentiment: Finally, we make note of the latest  Ticker Sense Blogger Sentiment Poll which came out today.  As I suspected, bearish sentiment increased dramatically from last week.  In fact, it's now running just 22% bullish and 44% bearish.  (For the record, I voted bearish).  That's getting close to where I'd award a point to the bulls on a contrarian basis.  The last time the bullish number was this low was in February 2010 at the end of a month-long decline.  The Dow then went on to rally over 1000 points in the following two months.  Oh what the heck, +1 for the bulls anyway.

I don't feel tardy

     And the winner is...

The bulls score a shut out with a bull-bear ratio of 7:0.  Which is a bit odd, because like Van Halen who didn't "feel tardy" in his immortal 1984 classic Hot for Teacher, tonight I don't feel bullish.  But  the analysis says otherwise so I'm calling Wednesday higher.  And I brought my pencil.

ES Fantasy Trader

The ESFT covered last night's short today at 1150.25. We had the right direction but managed to lose money anyway, mostly due to waiting too long to get in on the fun and ending with an 11.75 point loss, or $5875.  By noon the handwriting was on the wall so I bailed.  Account now $127,750 after 9 trades; 6 wins, 3 losses.  Tonight we're going long at 1166.  So far that seems to be working well.

BOT    10    ES    false    SEP11 Futures     1150.25    USD    GLOBEX    12:04:45   

BOT    10    ES    false    SEP11 Futures     1166.00    USD    GLOBEX    16:43:40