Thursday likely lower

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

• Thursday lower, medium confidence.
• ES pivot 1218.00.  Holding under is bearish..
• Friday bias higher, on technicals.
• Monthly outlook: bias up, on technicals.
• ES Fantasy Trader went short at 1207.25.

Recap

Last night I was thinking we had a shot at going higher today but I did mark it as low confidence and gave the usual warning about Europe.  Well today the Italian bonds went awry and the stock market went down.  I guess it's just a tough time to be a technician.  I know - excuses, excuses.  OK, I was just plain wrong.  As Jack Lemmon told Osgood Fielding III in Some Like It Hot, "Nobody's perfect".

The technicals

The Dow: With three consecutive down days, the Dow is now in a downward swing trend and I've updated the trend arrow to reflect that.  It's not looking good.  Yesterday we gave up the 12,000 support level.  Today the 200 day MA caved in the first few seconds of trading and it was all downhill from there.  We finally stopped at the next support level that I mentioned at 11,819, closing at 11,823.  Again, the next line is at 11,655, then 11,230.  If we don't develop some positive momentum soon, we have a good shot at both these numbers.

VIX daily

The VIX: This one is worth a chart.  Last night I talked about how the VIX had put in a doji and how that was a potential reversal indicator.  Just take a look at this: today we saw exactly that.  But today's candle is also just about a gravestone doji - another reversal indicator!  And notice how the stochastic (bottom graph) is making a bullish crossover.  And the VIX also popped right back up over its 200 day MA today.  All those things would seem to point to a higher VIX Thursday which would be bad for stocks.

VIX futures: The futures are just wandering around with another, tighter doji today.  Not much guidance here.

Market index futures: All three are losing ground again tonight with ES down 0.41% at 1:40 AM EST and remaining solidly inside its descending RTC from 12/8.  That said, having dropped four of the last five sessions, the ES indicators are now solidly oversold.  However, there really isn't a reversal indicator on this chart just yet.

ES daily pivot: Dropped from 1231.50 to 1218 tonight.  We have a lot of ground to make up to get back to this number, so this isn't looking good either.

Dollar index: The dollar is worth noting tonight because it not only continued a rally that began at the end of October, but hit its highest level since the beginning of January today, forming a gap-up inverted hammer that lies entirely above the upper BB.  The dollar rarely spends more than one day above that level and its been there for two days now.  Coupled with some very overbought indicators (RSI above 86) it looks to be due for a reversal real soon now.

And that's supported on the euro chart.  Generally the mirror image of the dollar, I get OBV for the euro (6E #F in eSignal).  Yesterday OBV hit its second lowest level of the year and a point below that from which the last two euro rallies started.  In the overnight, OBV is increasing.  That points to a reversal for the euro on Thursday which would support the idea of the dollar going lower and that would be good for stocks.

Morningstar Market Fair Value Index: Today the index ticked down again from 0.86 to 0.85, another bearish sign.

History: According to The Stock Traders Almanac,both Wednesday and Thursday are historically bearish.  That certainly played out today and doesn't bode well for Thursday.

     And the winner is...

I'm looking hard for a reason to be optimistic and just not finding one tonight, aside from a possible reversal in the dollar.  Accordingly, I have to give this one to the bears.  I am seeing some signs that a reversal may be coming in the next few days, but right now it doesn't look like it will be tomorrow, so I have to call Thursday lower.  And of course, good news from Europe could change that, but there seems to be nothing but gloom & doom emanating from there this entire week.

ES Fantasy Trader

Today we took a nasty 17 point loss on last night's ill-fated long position.. Portfolio stats: the account drops to $140.625 after 43 trades (29 wins, 14 losses) since inception on 8/18 with $100K. Reminder: the portfolio will reset to $100K cash on January 1st, to make year-over-year comparisons easier Tonight we go short at 1207.25 at 1:49 AM.

BOT    10    ES    false    DEC11 Futures     1228.50    USD    GLOBEX    DEC 14 01:39:32
SLD    10    ES    false    DEC11 Futures     1211.50    USD    GLOBEX    DEC 14 11:28:04