Tuesday higher on oversold rally

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

• Tuesday higher, medium confidence.  Bull-bear ratio is 4:5.
• ES pivot 1101.67.  Current price is slightly below that.
• Rest of week bias uncertain, oversold bounce possible midweek.
• Monthly outlook: bias down, on technicals
• ES Fantasy Trader going long at 1088.75.

Recap

Last night I called for a lower Monday and boy did we ever get one with the Dow diving 258 points to finish at session lows.  It was bad, really bad.  We kissed the 11K level goodbye and then went on to bust through the August/September support at 11,730.  All that stopped the Dow today was its encounter with its 200 week moving average at 10,648.

Also of note is that the SPX gave up the 1100 level today.  And it went under its own 200 week MA three days ago.

This makes tomorrow crucial.  If we break under the 200 week MA, then we're headed to 10,450 for sure.  Let's shake the Magic 8 Ball once again and see where we're headed Tuesday.

The technicals

The Dow: Today's ugly 2.36% decline on a long red candle going below support gives us nothing to cheer about.  Even worse, its indicators are not particularly oversold.  And even worse than that, the RSI is actually increasing and OBV remains stubbornly high.  So even though we hit the lower Bollinger band today, this is not the stuff reversals are made of.  I'm really not feeling the lvoe here and it's +1 bears.

The VIX: Last night I wrote "the VIX could still go higher tomorrow".  And so it did, jumping an additional 5.8% to close at a crazy 45.45.  This number is so high I have to switch to a weekly chart to find anything comparable.  And when was that?  The week of 5/17 last year when it hit a high of 48.20, during the Greek Crisis v. 1.0.  The only other time in history the VIX has been higher than this was during the fall of 2008 during the Lehman Bros. meltdown.

So anyway, today's gain was on a hanging man that took it right to its upper Bollinger band.  As I've noted here often, the VIX never spends much time higher than its upper BB  Being now also near another resistance point, I'd have to say the VIX is looking toppy here so I'm giving it +1 bulls.

VIX futures: Remain in their upward regression trend channel on a gap up green candle taking them to new highs.  However, they're now near the top of this RTC.  That's not enough to be a bullish sign, but enough to not give this one to the bears.  So no points here.

Market index futures: ES, NQ, and YM are, amazingly enough, actually in the green for once, though admittedly not by all that much.  ES is up 0.18% at 1:12 AM EDT.  That said, ES gave up not one but two support levels today, at 1121 and 1100.  However, two big days of declines have left the futures looking fairly oversold.

If nothing else, a dead cat bounce looks to be in order right now.  I also note that OBV hooked up today.  The other two times this has happened to this contract, the next day was up.  The stochastic %K line, at 11.21 is quite low and in good position for a bullish crossover soon.  On these items, I give the futures a +1 bulls.

ES daily pivot: is now 1101.67.  We're 11 points below that right now at 1089.  That doesn't make it an immediate factor tomorrow.  However, since tonight we're a lot closer to the pivot than last night (mainly because the pivot came down) it becomes more likely that its gravitational effect will start to be felt, so I'm giving this one to the bulls.  And should we break above this number that would be quite bullish indeed.

Dollar index: Last night I wrote "I'd be highly surprised if the dollar didn't move lower from here" on the basis of a big weekly hanging man.  Well I'm highly surprised.  The dollar took off like a rocket today to close at levels not seen since February.  In fact, its chart is looking exponential here.

And having hit its upper Bollinger band today I'm going to stick to my guns and call for a lower dollar.  But it may not be tomorrow.  Today's long green candle isn't a reversal sign and the indicators are not quite yet at oversold levels.  So I give the dollar one more day to rise before the fall and that's +1 bears.

Oil: Broke under its recent trading range today.  The pattern I spoke of last night did not hold.  Today's red candle and lack of any oversold indications can only lead to another +1 bears here.

Morningstar Market Fair Value Index: Something's screwy with Morningstar again.  The number they're putting up today is 0.79.  The graph says 0.85.  I tend to believe the former number is correct and therefore give +1 bears.

History: Well October certainly started off in accordance with its awful reputation.  With nothing historically looking any better for rest of the first week of the month, it's +1 bears.

Sentiment: The new Ticker Sense Blogger Sentiment Poll  came out today.  The bullish numbers for the last two weeks were 14%, then 21%.  This week, the bullish number dropped back to 14.8%, with a 52% bearish reading.  This is the kind of spread that's associated with contrarian reversals, so strictly on that basis it's +1 bulls.  Also, J-Trader remains bullish for tomorrow.  For the record, I switched my vote to bearish this week on the basis of continuing turmoil in Europe.

     And the winner is...

The bears by a bull-bear ratio of 4:5.  I'll admit I was surprised to see this when I added it up because tonight, like Van Halen who didn't feel tardy, I don't feel bearish.  It just seems to me that the recent sell-off was overdone.  Not that I don't believe there's still more downside to come, but for now, I think we may see a one, possibly two day rally from here.  So I'm going to exercise an executive veto over the voting tonight and cautiously call the market higher on Tuesday.

ES Fantasy Trader

Today we covered last night's short at  1116.00 for a 2.75 point gain.  I was really expecting a turn in the market later in the day which is why I closed out early.  OK, so I left some money on the table, but hey, that always beats losing money, or even the risk of losing money.

Portfolio stats: the account is now $136,750 after 20 trades (14 wins, 6 losses) since inception on 8/18 with $100K.

SLD    10    ES    false    DEC11 Futures     1118.75    USD    GLOBEX    00:43:26
BOT    10    ES    false    DEC11 Futures     1116.00    USD    GLOBEX    12:30:23

Tonight, the ESFT went long at 1088.75.  In the For Real world, I'm still standing aside due to the absurdly high level of the VIX  I have zero appetite for that sort of risk.