Friday, February 11, 2011

Going down

Yesterday I wrote
"it would not surprise me to see the Dow decline tomorrow."
Sure enough, the Dow dropped 10.6 points today. And oddly enough, while yesterday the Dow was up and the Nasdaq and S&P were down, today it was exactly the reverse. Anyway, of more concern than the slight drop today is the fact that a host of technical items are all lining up bearishly right now:

First is the shape of the candle: definitely a hanging man. A hanging man with a long tail at the top of a big rally is always a bad sighn.

Secondly, the VIX did not in fact break its support and closed higher today. In fact, it clearly looks to have bottomed now and is poised to go higher.

Thirdly, the unrest in Egypt is cranking up again.

Fourthly, the Dow indicators which you can see on the chart here look to have topped and are rolling over from very overbought levels.

Fifthly, the Dow closed today at 12,229, just a hair's breadth above the daily pivot of 12,227.4. If the Dow falls below this level tomorrow, it will serve as resistance and then look out below.

Sixthly, look at how this week seems to be replaying two weeks ago. It was exactly two weeks ago Friday that we had that big 166 point plunge.

And finally, the ES futures are down a significant 0.53% right now (1:30 AM EST). NQ and YM are down almost as much. The ES in fact has already broken down out of its rising RTC and given a bearish trigger. That uptrend is already over and replaced by a downtrend.

None of this bodes well for tomorrow. Accordingly, I am declaring the current swing trend over, even though we did not get a true RTC bearish trigger today from the Dow. And I'm putting my short hat on for tomorrow. I'd love to be more optimistic, but I just don't see this market going higher on Friday. And I'll bet it loses more than 10 points.

No trades today

Thursday, February 10, 2011

Looking toppy

Yesterday I thought the Dow might go lower today. Turns out that while the Nasdaq and the S&P did in fact go lower (a bit), the Dow actually rose (a bit). And as you can see in the Dow daily chart here, it formed a dojiish almost hanging man sort of candle. Anyway, this all indicates general uncertainty as to the market direction.

Right now, we're getting some guidance from the futures which are all down at 2 AM EST, with the ES down 0.13% and the NQ a bit over half a percent. Also, the VIX today dropped right back to its support level just under 16 but did not break below. This all looks to me like part of the topping process whenever stocks go exponential.

So it would not surprise me to see the Dow decline tomorrow. It's too early to declare the current upward swing trend over since we're still well in the upper half of the ascending RTC but I'd call today's action a bearish warning signal. We'll have to see how tomorrow plays out to see if it is in fact time to go short. In any case, I'm seeing more short term upside risk than reward right now.

No trades today.

Wednesday, February 9, 2011

Dow going exponential? Maybe lower.

Yesterday I wrote "looking for higher" and we got it today, to the tune of a 71.5 point advance in the Dow. In fact, not only was this the fourth straight day of gains, but the gains got bigger with each passing day. Now looking at this daily chart, to me at least it almost looks like the Dow is going exponential here. You sometimes see that in stocks, but it's unusual to see an entire average do this. And it makes me a bit concerned. As we all know, this is one of the most classic signs that a top is coming.

The VIX formed a classic hammer today to close back at its support level just under 16. This implies a rise in the VIX soon, and thereby lower stock prices. Add to this that today's volume was lower than yesterday's and that all three futures are non-trivially lower tonight (at 2 AM EST), with the ES in particular being down now by 0.23%, and I'm taking my long hat off at this point. I'm not taking the green swing trend arrow down as I've yet to see an indication that a top has been put in, but I do think we may be in for a day of lower prices tomorrow. We'll see.

No trades today. I'm watching the stocks in my low price/high yield portfolio closely now because they have run up so much since I bought them last summer, I've made more in capital gains than from their yield, which was the original objective. Therefore, it makes little sense to sacrifice that profit should they start back down. Yielding on average over 10%, this particular party can't go on forever.

Tuesday, February 8, 2011

Looking for higher

As I thought it might, today the VIX respected its support level and closed higher. Oddly enough, stocks closed higher too, with the Dow gaining an impressive 69 points. This is certainly unusual. I think right now we're in one of those situations where the operative motto is "don't fight the tape".

With all three futures up right now at 2:10 AM EST by just over 0.1%, no meaningful near-term overhead resistance in the Dow, no decline in volume today, no big economic news coming out tomorrow, no new global calamities in the news (at least right now), mostly good earnings being reported, and the Dow still running near the top of its rising regression trend channel, I just have to leave my long hat on for tomorrow.


I used some of the proceeds from yesterday's sale of SPIL to get back into HIMX today at 2.58. It closed at 2.62 and looks to be going higher. We'll see.

Monday, February 7, 2011

No "correction" in sight

After last week's big run-up in the market, many have been wondering when the big correction might be coming. I'm afraid I don't see it, not on the charts anyway. I simply do not see any sign of a reversal right now on the Dow daily chart, or even the weekly chart. In addition, the second week in February tends to be the best of the month, historically.

My one concern for tomorrow rests with the daily VIX which you see here. Note that right now it is at exactly the same level that has provided support the last three times we were here, just under 16. The only thing is that it still hasn't reached its lower Bollinger band yet. However, as you can see on January 27th, the VIX reversed course without ever reaching the lower BB. That said, the VIX remains in a primary downtrend going all the way back to last August. However, tomorrow will be key. There is little guidance from the futures tonight, with the ES up just 0.02% and the NQ down by the same amount at 1 AM EST.

So I'm going to leave the green swing trend arrow in place, but I'm not making any call for tomorrow. I'd like to see the market higher, but the market doesn't care what I like. There's no big economic news coming out tomorrow and Egypt seems to be calming down, so that's a good thing. My best guess is that if the VIX does go lower tomorrow, that only increases the chances that it will reverse on Tuesday, implying stocks lower then. We'll just have to wait and see on this one.