Wednesday, September 28, 2011

Wednesday looking lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday lower, medium confidence.  Bull-bear ratio is 5:4.
  • ES pivot 1171.50.  In play: holding under is bearish.
  • Rest of week bias lower on volatility and Europe.
  • Monthly outlook: bias  up on technicals.
  • ES Fantasy Trader opened new short position at 1164.50.

Today's action played out just about as I expected Monday night when I wrote that yesterday's gain was  "big enough to develop some traction but not so big as to invite a major correction the next day, leaving us in the sweet spot. ".  And how sweet it was, with a 147 point advance in the Dow, up over 300 at one point.  After three consecutive up days, can we make it four?  We shake the Magic 8 Ball and look for clues...

The technicals

The Dow:  Today's gain unfortunately left us with a classic shooting star and that's a bearish reversal pattern, albeit not a particularly strong one.  Countering that is the fact that the stochastic is just finishing a bullish crossover and RSI is just coming off oversold levels.  However, OBV and momentum are at levels associated with a top.  Also, today's advancing volume was lower than yesterday's.  So all in all, that just barely tips this scale to the bear side, so +1 bears.

The VIX: Also as expected, the VIX ran lower again today but did it on a gap-down green candle.  At 37.71, it fell below its Zone of Total Psychosis (the area around 40) and is now merely in the Region of Complete Lunacy.  Being stuck around halfway between Bollinger bands but with indicators still in oversold territory, they pretty much cancel out so no points awarded.

VIX futures: While this chart once again looks pretty much like the VIX, I can draw a rising regression trend channel on it that indicates the futures are in no hurry to drop much further.  On the other hand, the stochastic here also just finished a bearish crossover and that's always very reliable.  I'm going to award +1 bulls on that basis alone  (hey, it's not an exact science)

Market index futures:  All three (ES, NQ, and YM) are now down by nearly a third of a percent (1:15 AM EDT) unlike on the past three nights. With today's shooting star followed by a developing dark cloud cover, this one is +1 bears.

ES daily pivot: We've gone below the new pivot at1171.50.  Or more precisely with ES at 1165.75, the new pivot has climbed above the current price.  This puts the pivot in play, so watch this in the morning hours.  Failure to climb above this level is bearish.  Right now, this has to go +1 bears.

USD Index, daily
Dollar index: Also as I expected last night, the dollar took a hit today, though I wasn't expecting it to be quite this big.  In any case, we broke recent support and the indicators are all just coming off overbought levels, so +1 bulls (lower $ -> higher stocks).

And just look at this beauty of a chart.  One hanging man, a second hanging man and then kaboom, look out below.  That double hanging man (and double hammer) pattern is one of the best around.

Oil: As I suggested last night, oil did indeed rally today.  Still coming off oversold levels and approaching a gap needing filling-in, it looks like there's still room to run higher here, so +1 bulls.

Morningstar Market Fair Value Index: Jumped from 0.79 to 0.81 today.  Coming off such a depressed level, this is bullish.  +1 bulls.

History: As last night, I mention that while the week as a whole has a bum rap, the middle three days tend to outperform, according to The Stock Traders Almanac, so we give again +1 bulls.

Sentiment: The general short-term feeling of the three blogs I follow the most has turned negative.  Since this is a small sample, it doesn't become a contrarian indicator and therefore is +1 bears.

     And the winner is...

The bulls again, but unlike yesterday's 9:0 shutout, tonight it's only a squeaker, with a bull-bear ratio of just 5:4.  But this is a tough one.  This shooting star in the middle of the Bollinger bands isn't a very common pattern (I had to go back to 2006 to find one - the next day then was up).

But with the bull:-bear ratio basically undecided and the futures running out of steam and right at resistance, the Night Owl is going out on a limb and calling Wednesday lower on the expectation of profit-taking, the level of the VIX, the fact that we haven't heard a discouraging word from Europe for a whole day (which makes it overdue), and the fact that I'm just not feeling the love (like I said, it's not an exact science).

ES Fantasy Trader

We closed out today's trade for a nice 23.25 point gain or $11,625.  The portfolio stats the account is now $131,125 since inception on 8/18 after 18 trades, 12 wins, 6 losses:

BOT    10    ES    false    DEC11 Futures     1160.50    USD    GLOBEX    00:43:26
SLD    10    ES    false    DEC11 Futures     1183.75    USD    GLOBEX    11:23:53

Tonight, we go short at 1164.50.

CNBC Million Dollar Portfolio Challenge stats:

Hey CNBC, you can keep that weekend in Dubai, I want the Lamborghini :-)  Vroom vroom!

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