Yesterday I had a vague feeling we might close lower today and that's just what happened, with the Dow losing 17 points. The intraday chart might look good, with the Dow erasing most of its early losses in a strong afternoon rally, but unfortunately, this created a hanging man candle and that is a classic bearish indicator.
However, we need some confirmation of the hanging man to call a top. Right now we're not getting much in the way of that from the futures with the ES and YM both up just 0.08% and the NQ actually down by 0.02% at 1:05 AM EDT. The ES had actually been rising all evening until exactly midnight when it abruptly revered course. Why? Who knows.
Our other favorite indicator, the VIX meanwhile is bumping along its support level around 17 and really seems to be unable to gain any traction. This is surprising considering the amount of bad news floating around right now: continuing war in Libya, a new earthquake in Japan, new oinking noises from the PIGS, and the threat of a government shutdown tomorrow night (although personally I view that as a piece of good news).
If all of that can't drive this market down more than today's 0.14% loss, it's difficult to make the bear case for tomorrow, hanging man or no hanging man.
Meanwhile oil continues it speculation-driven march to the stratosphere, closely replaying the insane summer run-up from 2008. Based on where we are now compared to then, it will take another 9 weeks before we hit the blow-off top at $147. I don't know what's so magical about that level, but it was the peak in 2008 and it will be significant resistance this time around. And I have no doubt we're going there again.
So that's the other piece of bad news. The market doesn't seem to care that oil has topped $111. We're now in one of these modes now where bad news just doesn't matter. In the space of less than a month, we've gone from a completely news driven market to a completely news-ignoring market. It never ceases to amaze me how that happens.
And I think that once again, the pivot will decide tomorrow's fate. We closed at 12,409 today; the pivot was 12,421. Tomorrow the pivot should be a bit higher. If we can break above that early in the session, then I think we close higher. OTOH, if we bounce off it and go lower, then the whole day will end lower. Watch the early morning trading after the usual initial noise burst subsides (I'll be sleeping) and see if that isn't what happens.
In the meantime, we're in just about the same place we were yesterday: limited downside to the VIX preventing much of a rise in stocks, and strong support at 12,390 (which was tested today but ultimately held) preventing much of a decline. So I'm looking for action constrained in the 12,390 to 12,450 range (yesterday's high) tomorrow. My best personal guess is that we're going higher tomorrow. That's all she wrote.
Yesterday I said I though we could go a little higher today and that's just what happened, with the Dow gaining 33 to close at 12,427. In fact, nearly the entire day was above what is now the 12,390 support level and every day that goes by staying above that makes the support stronger. And that number is right around the daily pivot (12,395) making it stronger still. Also we note that the Dow volume has been increasing three days in a row now. The fact that yesterday's doji resolved to the upside is also technically bullish.
Turning to the VIX, it tested its own support at 16.5 for the third time in four sessions, and it held, closing not much higher than that at 16.90 today. This suggests that the VIX doesn't have much lower to go from here, implying that the short term upside for stocks may be limited.
Also on the downside, the futures are all running lower this evening at 1:20 AM EDT, off by 0.13% to 0.19%. The negative bias was reinforced when the Bank of Japan news hit just after midnight Eastern. And we are now exiting the historically bullish early part of April.
So overall, my feeling about tomorrow is about the same as it was last night for today. Some mixed messages in the data and no strong forces guiding us in either direction. To the contrary, we have a VIX indicating limited upside for stocks, and a strengthening support level at 12,390 indicating limited downside for stocks.
That all makes for another tough call. My instinct right now says we may go a bit lower tomorrow but once again, I'm not looking for either large gains or declines.
Nothing in my trading account but today I unloaded my position in Clearwire (CLWR) that I held in my IRA for a small profit. CLWR put in a hanging man today right at the top of its recent trading range after a big three day run-up. It's looking ready to go lower tomorrow.
Yesterday I had the feeling the Dow could go lower today and that's just what it did, giving up all of its intraday gains and then a bit more to close down just over 6 points. In doing so it formed a doji, indicating indecision in the markets. How will this resolve? There's not much guidance from the VIX which continues to bump along the bottom at its support level around 17. It formed a hanging man looking candle today but with so little trending going on there I don't really read anything into that.
I think that tonight we have three clues.
Clue 1: the futures, which are all higher by 0.2% to 0.3% at 1 AM. We see that the ES in particular crossed over its daily pivot just before midnight and has been holding above it since then.
Clue 2: the Dow closed today at 12,393 which means that what had been the February resistance is becoming support.
Clue 3: Indicators. Although the stochastic and RSI remain broken in overbought territory, momentum and money flow have come down considerably off their recent highs. Momentum has in fact turned positive and money flow has sunken to levels that suggest a bullish bias.
So that leaves us at sort of a crossroads. The Dow doji suggests we could go either way tomorrow. There are several indications that we might go higher but I don't see all that much gas in the tank to propel the move right now. On the other hand, we have support after a fashion to block any moves lower. So it's another tough call. My bias says we're going higher, at least a little tomorrow, but I don't have much confidence in saying that.
Today I sold 100 shares of AOD out of the low price high yield portfolio, mostly for rebalancing, though AOD does seem to be a bit on the overbought side at the moment. I then bought some MGN, Mines Management Inc., a silver play, at 2.96. It closed today at 3.17. Silver is just on fire and showing no signs of slowing down. I've had a bunch of SLV in my IRA for years now and it has been the best performer in that portfolio.
Well the Dow daily pivot certainly was the key today. We opened just above it at 12,375 and aside from one brief dip below it at 2:30 PM, held above it all day. And importantly, we closed at 12,400, finally closing above the February high (the horizontal blue line in the chart).
This should signal the all-clear to advance further since there's no resistance now all the way back to the spring of 2008. But I'm not so sure. The pace of the rally from the depths of the Japan disaster has been slowing the past few days. And also note how volume has been declining for three days straight now even as the Dow has been climbing. And all three futures are lower at this hour (1:10 AM EDT) by 0.2 percent to a third of a percent for the NQ. And they've been trending lower since 7:30 this evening.
Meanwhile, the VIX is still trying to figure out where it's going. It rose today but did so on a red candle. Although it has more room to go higher than it has to go lower from here, it doesn't really seem to have much steam behind it at these levels so there's not really much to learn from it tonight.
Oil meanwhile just continues to grind higher and basically seems to be replaying the spring of 2008 all over again. If history repeats itself, we have about five more weeks of oil speculation before it tops out. We'll see.
I'm inclined to say that the Dow could go lower tomorrow but since tomorrow is a day when the Fed minutes come out, there's no forecast tonight. I have no way of knowing what they're going to say, and what they say invariably drives the entire market regardless of whatever else may be going on at that time. So tonight is just going to be one of those watch and wait times.
Hmm - although the next three trading days in April are historically strong, I have my doubts about tomorrow. On Friday, the Dow tried to crack the February high at 12,419 and was rejected. As we've seen before, it often takes more than one try (and very often it takes three tries) to crack these kinds of resistance levels. Also, the VIX closed at 17.4 on Friday and actually put in a green candle after bouncing off its support at 16.4. And all three futures are lower right now (1:20 AM EDT), though not by much. And more to the point, they're not really trending lower. They're more sort of meandering about the chart. And with no economic news coming out tomorrow, we won't have that to set the tone for the day.
So all in all, we're not getting any real strong signals in either direction which makes calling tomorrow somewhat problematic. My best guess, and this is only a guess, is that we'll take another shot at the February highs and it will be rejected again. But I'm not looking for any large moves tomorrow, either positive or negative. In fact, we may be in for a few days of consolidation around these levels before the next push higher. Nevertheless, the green swing trend arrow remains in place.
The key, as it is so often, will be the daily pivot. On Friday it stood at 12,340. We closed at 12,376. Watch these two levels early tomorrow. A break below the pivot will signal a lower close and vice-versa.
One item I did find interesting - on Friday afternoon, the bears did not knock 'em down into the close as has been happening the past few days. This is particularly interesting since one would expect the day traders to head for the exits before the weekend. I'd call that something of a bullish sign.
BTW, how about my call last Thursday for Friday? No April Fool's there - when you're right, you're right.
Michele is a swing trader, a night owl, and a student of Japanese candlestick charts. She retired from a large tech company at the age of 50 and has now been trading US stocks and occasionally the e-minis on a full-time basis as an independent trader since 2004.
The Night Owl Trader publishes every trading day late at night (or very early in the morning) around 1 or 2 AM, with occasional bonus commentary and analysis thrown in on weekends.
The Night Owl is independent, ad-free, and made freely available to all. Contact me at nightowltrader (at) gmail.com.
BB - Bollinger Bands COT - Commitment of Traders Report DCB - Dead Cat Bounce MA - Moving Average RTC - Regression Trend Channel YTD - Year To Date
(My lawyer made me do it) This blog is not trading or investment advice, account management or direction. All trades listed here are presented only as examples of the author's personal trading style. Investing entails significant risk and trading entails even greater risks. Act accordingly.