Thursday likely lower

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

• Thursday lower, medium confidence.  Bull-bear ratio is 1:6.
• ES pivot 1211.75.  holding under is bearish.
• Rest of week bas bias lower
• Monthly outlook: bias up, on technicals.
• ES Fantasy Trader remains short at 1193.50.

Recap

    Quote of the day

"I'm saying it bluntly, that this administration is the greatest wet blanket to business, and progress and job creation in my lifetime….until he's gone, everybody's going to be sitting on their thumbs."

- Steve Wynn, CEO, Wynn Resorts

Ah, finally!  It was the Beige Book to the rescue today, saving my call for a lower close with a drop-off that began promptly at 2 PM and ended with a 72 point loss for the Dow.  At last, I got one right.  Now of course one can argue that if it hadn't been for the BB, I would have been wrong again.  And I've been criticized in the past for taking credit for market moves predicted on a technical basis when the precipitating factor was some sort of news.  But it's really funny how often bad news comes out right at the top of candlestick reversal patterns and vice versa.

That said, we remain in a funny market lately as an alert reader pointed out in a comment to last night's post, a comment well worth reading I might add.  It really does seem that a sea-change of sorts is occurring lately in the markets.  I don't know if it's due to the VIX retreating from its insane levels above 40 recently, or simply that we're entering the traditionally strong fourth quarter, but it seems that bad news isn't tanking the market the way it did just a month ago.  Anyway, let's move on and run down the usual list of suspects to see where Thursday may go.

The technicals

Dow daily, Aug. 2010

The Dow: We've now completed six straight sessions just hanging at the top of a strong rally without heading back down again.  All summer long, the pattern was to hit a peak with a one or two day reversal signal around a hanging man, and then head right back down after a rally.  Now the indicators all peaked six days ago, but prices haven't budged at all.  In fact, it's reminding me a lot of this chart here.  This is the Dow daily from back in early August of last year.  Back then the Dow had been in rally mode for a month and then spent six days moving essentially sideways before finally retreating.

And today also marks six days that we've been wavering around the 11,510 level, unable to break over resistance at 11,650 (the August highs), nor fall below support at 11,400. Given this recent pattern, today's weak red candle has no predictive power.  However, four of my fave five indicators, RSI, momentum, stochastic, and OBV are all finally coming off their overbought broken levels, suggesting lower to come.  And there's that interesting historical precedent from last year.  On that basis, I give this one to the bears, +1.

The VIX: I did get this right last night when I called for the VIX to advance today despite it having put in a dark cloud coverish candle yesterday.  We got a 9% gain today.  And with no near term resistance plus indicators now just halfway to overbought, it looks like more upside is possible tomorrow.  And that's +1 bears.

VIX futures: This chart is a bit more clear than the VIX itself.  Today we got a classic bullish engulfing pattern that along with rising indicators also point to a higher VIX tomorrow.  So that's another +1 bears.

Market index futures: All down by a third of a percent at 1:35 AM EDT.  Today's red candle was the fourth day in a row that ES has changed course but remained in a fairly wide range of 1192-1232.  On that basis alone, with ES now at 1202.50, it's got 10 points lower to go Thursday.  And like the Dow, its indicators are now finally coming off their overbought levels.  Given that plus the facts that we hit the upper Bollinger band two days ago and bounced off and also broke 1211 support today, this is looking like +1 bears.

ES daily pivot: Is now 1211.75.  We fell below Wednesday's pivot  on the Beige Book and despite a comeback attempt up to about 8 PM, we remain below and are in fact drifting lower now.  That's +1 bears.

Dollar index: The dollar has been really getting jerked around the past two days on news out of Europe.  First a gravestone doji Tuesday, then a dragonfly doji today.  Those are both bearish signs.  On the other hand, the indicators are looking bullish.  Since the buck seems to be so news-driven this week, I'm not giving any points here tonight.  I don't know where this buck stops.  It will just have to find its own way on Thursday.

Oil: I got this one right last night too, calling for lower oil today.  Actually, oil's been reversing direction every day for the past five straight sessions.  However, its indicators are finally coming down from their broken-overbought levels and the ballistic trajectory of the chart looks to have peaked, so I'm going to call for oil lower again Thursday.  And with oil still in sync with the markets, that's +1 bears.

Morningstar Market Fair Value Index: Morningstar did not provide an update today, so no points awarded on this one.

History: According to The Stock Traders Almanac,Thursday, the day before October expiration, is actually quite strong historically, so +1 bulls.

     And the winner is...

The bears again, with a bull-bear ratio of 1:6.  With Asia selling off, more dyspepsia in Europe, Greeks rioting over the outrageous notion that they might have to work for the money they get, and a NH/NL ratio running over 2 to 1, I'm not feeling the love here.  I've got to conclude that we're going lower on Thursday.

ES Fantasy Trader


Today we remain short from two days ago - no new trade.  I think a bit more patience with this trade may pay off in the end.

Portfolio stats: the account remains $130,500 after 24 trades (17 wins, 7 losses) since inception on 8/18 with $100K.