Tuesday lower

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

Overbought.

• Tuesday lower, high confidence.  Bull-bear ratio is 0:9.
• ES pivot 1258.42.  Current price is far below that.
• Rest of week bias lower but rebound possible by Friday.
• Monthly outlook: bias up on technicals.
• ES Fantasy Trader went short at 1238.25.

Recap

Happy Halloween to one and all!  Today the Dow barfed up 276 points as the market rounded out a great October on a down note.  So will this nasty trick be followed on Tuesday by a yummy treat?  Let's paw through our bag of goodies and find out.

The technicals

The Dow: Today's close of 11,955 broke psychological support at 12K and took us just barely past 200 day MA support at 11,974.  Unfortunately, that happened just before the close so if we had been open longer, would the Dow have bounced there?  I'm afraid the chart's not supporting that notion.  The indicators are all still overbought and have now peaked.  OBV in particular put in a top yesterday and that's always a bad sign.  The good news is that there's more support at 11,890.  It's likely we'll revisit that tomorrow.  Then next comes 11,694 though I don't think that's in the cards for tomorrow.  Either way though, it's +1 bears.

Daily VIX

The VIX: Completely filled the big downside gap it made last Thursday on a tall green candle to leave us right back at 30 again.  In fact this candle was a gap-up.  This one is worth a chart because there's something unusual going on here.  In fact, this is now the third time I've used the phrase "something unusual" here in the last week, which is unusual in itself.

See how in the month of October, 5 of the 21 sessions featured the VIX making a gap up or down.  It seems that the volatility of the VIX is increasing - note particularly the action of the last four days.  It has been noted before that when the "VIX of the VIX", essentially the second derivative of the market increases, it signals a longer term trend change.

I view this as a positive for the market over the next two months but I don't think it will help much tomorrow.  The VIX is still just coming off oversold, is still closer to its lower BB than the upper, and isn't near any particular resistance point.  It doesn't have a good reason to go down right away from here so that's +1 bears.

VIX futures: Similar to the VIX itself, this chart actually looks to have even more room left to fill its gap.  Higher futures -> higher VIX -> lower stocks -> +1 bears.

Market index futures: Once again, all three futures are down with ES leading the way with a 0.92% loss at 2 AM EDT.  This bring it right to the lower edge of its latest rising regression trend channel, a bearish setup.  While today's loss took us out of overbought territory, the indicators are all still heading lower and the next support isn't til 1224, so that's +1 bears.

ES daily pivot: Now 1258.42.  Although that's lower than last night, ES has also declined and is now running 20 points below.  That puts the pivot effectively out of play for Tuesday.  Another +1 bears.

Dollar index: The dollar jumped today thanks to the BoJ's yentervention, nearly completely erasing its losses from last Thursday.  Today's close of 53.59 (on $USDUPX) is just short of resistance at 53.77 and the 200 day MA at 53.87 so I think that while further gains may come on Tuesday they'll be more muted than today.  But that's still +1 bears.

Oil: As I thought last night, oil did go lower today.  In fact we now have not one but two hanging men on the daily chart.  I've not seen the "double hanging man" pattern in any chart book, but I believe it's a lot better reversal sign than just one alone, so that plus overbought indicators =  +1 bears.

Copper: Last night I wrote "copper goes lower Monday" and today it took a nearly 5% drop completing an evening star-ish/two crows pattern, both of which are bearish reversals.  And it left us just about at the top of the big upside gap that formed last Thursday.  With all overbought indicators, a stochastic finishing a bearish crossover and that gap wanting filling, it's looking like copper is going down some more Tuesday so that's +1 bears.

Morningstar Market Fair Value Index: For some reason, Morningstar has not updated this number since October 27th, so no points here today.

History: According to The Stock Traders Almanac, while the Dow is up 63% of the time on the first trading day of November, it has been down 4 out of the last 5 years.  So despite November's stellar reputation as a whole, I'm going to give Tuesday +1 bears.

Sentiment: Once again it's Monday, so the new Ticker Sense Blogger Sentiment Poll  came out today.  Last  week the bulls dropped to 36% while the bears rose again to 39% putting them back into the majority.  This week we had another big reversal in the poll with the bulls getting on board to take a 67% lead compared to just 15% bearish.  You have to go back to November '08 to find such a large bullish number.  But i think it's a bit early to play the contrarian card here.  Still it's worth keeping this number in the back of your mind.

For the record, I voted bullish again now for the fourth week in a row, still on the basis of my reading of the monthly Dow chart and the upcoming bullish fourth quarter seasonality.  But if next week's poll becomes any more bullish, I might have to reconsider my position.

     And the winner is...

The bears with a shut-out for a bull-bear ratio of 0:9.  While J-Trader covered his shorts today, I'm afraid I'm going to have to part company and call Tuesday lower again.

ES Fantasy Trader

Today we took a profit of 19.75 points on last Thursday's short.  Once again, patience paid off.  Rather than taking a small loss on Friday I held short over the weekend and then today, ka-ching.

Portfolio stats: the account is now $161,500 after 30 trades (22 wins, 8 losses) since inception on 8/18 with $100K

BOT    10    ES    false    DEC11 Futures     1262.75    USD    GLOBEX    11:18:43

SLD    10    ES    false    DEC11 Futures     1243.00    USD    GLOBEX    OCT 25 01:38:26

Tonight, we go short again at 1238.25.
 
The reboot of the CNBC Million Dollar Portfolio Challenge was also most kind to the Night Owl.  On the first day of the new contest, my standing jumped significantly from where it was before the shutdown.  However, after reading the revelations of how the top players got to where they were, I've pretty much already given up on winning the big bucks.

Unfortunately, I have a life which means I don't have the time to spend all day long literally glued to my screen executing a trade every 30 seconds for 5 weeks nonstop which is apparently what it takes to bring this one home.  So it ends up being more of a fun thing for me, as in with a few well-placed trades I'm just a bit more than half a percent from the top.  And it only took a few minutes of my time.  So there :-)