Friday, April 15, 2011

Outlook mostly positive for tomorrow

Last night I wrote "Further gains possible tomorrow" and that's just what we got today, with the Dow's 14 point gain doubling the advance of the day before.  And right now, it's looking like there may be more upside in store for tomorrow.

Starting with the VIX, we see that it continuyes to eat away at it's supprot around 16.  After gapping up at the open, it just fell away to close at 16.27.  At this point, I'm thinking that it's year-long support level at 15.5 might not be that far out of reach.  A visit to that neighborhood will surely be positive for stocks.  Also noteworthy is that today's candle was a bearish engulfing pattern.  We saw what that did to the oil chart just a few days ago.

The Dow meanwhile put in a hammer pattern and closed at 12,285.  Once again the 12,250 support level was tested and once again it held.  You know the old saying, "That which does not kill me makes me stronger", well the more tests of this level we survive, the stronger that support becomes.  In addition, the Dow's short stochastic began a bullish crossover today and both the RSI and momentum hooked upwards, also bullish.

The story is pretty much the same in the ES futures indicators.  Turning to the ES regression trend channel, we see that three days of basically sideways action have brought us almost to the right edge of the descending channel.  One more day of this will be a bullish setup.  The only negative in the picture is the prices of the futures themselves.  All three are down right now (2 AM EDT), though only modestly from 0.1% to 0.16%.

And historically, The Stock Traders Almanac tells us that Tax Day, April 15th, is historically bullish with the Dow down only five times since 1981.  (OK, I know taxes aren't due til next Monday this year because of some holiday in DC, but I'm assuming the principle remains the same).

So basically all of the factors I talked about last night are still in play tonight, only more so.  This means that although I generally don't like going against what the futures are telling me late at night, I'm going to have to go with the technicals on the charts and make a guess that tomorrow will end out the week on an up note.


Today I took a small position in Alcoa (AA) at 16.49.  It's taken a beating over the last week and is looking quite oversold at this point.

Thursday, April 14, 2011

Further gains possible tomorrow

Yesterday's post was titled "Now looking for higher" and that's just what we got today. Admittedly a 7.4 point gain in the Dow isn't exactly the big score, but it represents a victory for the bulls nonetheless.

And President Nerobama made a speech on TV this afternoon. In case you missed it, I can summarize it real fast: "blah blah blah". That was good for about a 10 point drop in the Dow, but it regained all that and more after he quit (quit speaking, that is).

Moving right along, today's daily chart is not of the Dow but of the VIX. I've been using the VIX lately to guide my market forecasts and it's been working pretty well. Note in this chart how the VIX has been drifting lower over the past two weeks. And the past two days have been interesting. Yesterday it gapped up but ended up putting in a red candle and today we got the exact opposite - a gap down that ended up as a green candle.  That's a real tug-o-war.

But note how today's open, at 16.2 was lower than any point since February 18th. The VIX support at this lower 16's level seems to be softening. If the VIX cannot muster a gain tomorrow, I think it's likely to go lower, to its baseline support at 15.44. That's a level that goes back a whole year. One might even note the lower Bollinger band at 13.74, though I don't think a trip down that far is in the offing any time soon.

Also, the VIX indicators, which just a few days ago were indicating oversold, are now out of that region. By contrast, all of the Dow indicators are now in oversold territory. We also saw another test of the 12,20 level today and once again, it held. The Dow ended up forming a doji indicating corresponding indecision and a loss of downward momentum after yesterday's big drop.

Oil meanwhile sank into the 105's today before recovering but only back to the low 107 area in the overnight.

Finally, the futures are all up at this hour (1:15 AM EDT), and although admittedly only by a small fraction, the trend has been up since around 9:30 PM.

So overall, I'm liking the prospects for another gain tomorrow. With the VIX still unable to find the gas pedal and the Dow having dropped into oversold territory, I think we've got more upside potential than downside risk at this point.  That's all, she wrote.


I got back into my MGN silver play at 2.86 today.

Wednesday, April 13, 2011

Now looking for higher

Last night's post was titled "Looking for lower" and boy we got lower today, to the tune of a 117 point dump in the Dow.  The good news is that today's close at 12,263 actually represents a successful test of the support level at 12,250.  In addition, the Dow indicators have now all gone from way overbought to the edge of the oversold area.

And go back to yesterday's post for my comments on oil.  Look again at the bearish engulfing pattern.  That is one of the most reliable candlestick patterns out there.  And sure enough, oil was down big today, falling below 107.

Now after today's big drop is it possible to still go lower tomorrow?  Sure, except for two things.  First, while the VIX gapped up at the open today, it ended up in fact putting in a red candle.  It remains stuck in the 16-18 region it's been stuck in for the last 10 sessions.  I don't see much fuel in the VIX chart pushing it higher right now.

And tonight all three futures are up by better than four tenths of a percent (at 1:30 AM EDT), and that is definitely non-trivial.  In fact, all of the indicators for the ES have now traveled completely from very overbought to very oversold, even more than the Dow indicators.  The RSI has actually bottomed and the short stochastic is ready to execute a bullish crossover.  And the ES bounced off its 40 day MA at 1307, also a bullish sign.

So there you have it: the specter of sky high oil prices draining cash from the economy abated (at least for now - I wouldn't be surprised to see the advance resume later this spring), at least some mumblings about a resolution to the Libya problem, no new sever damage from the latest Japan earthquake, the VIX stuck in the doldrums and the futures guiding higher.

Put it all together and whereas last night at this time I was moderately pessimistic, tonight I am moderately optimistic.  I'm still leaving the red trend arrow in place because we haven't seen an upturn yet, but I would not be surprised to see tomorrow close higher.

No trades today.

Tuesday, April 12, 2011

Looking for lower

Yesterday, I couldn't decide if the market was going to go up or down today. As it turns out, the market wasn't able to decide either. First the Dow went up, then it went down, finally ending higher by just a single point. In the process it created a long tall doji with a lower high and higher low than yesterday. Clearly today did nothing to wring the indecision out of the market. What it did do was bring the indicators a bit further off their overbought levels.

But the really interesting chart today was not the Dow, it was oil. Check out this daily chart of the June futures. You see here that oil had been in a pretty steady uptrend since the end of March. Until today. What's remarkable about this chart is not just that oil (finally) went lower, but that it put in a bearish engulfing pattern doing it. Today's red candle completely covering the span of yesterday's range is quite a bearish sign at least in the short term and I would expect to see oil go lower tomorrow.

Indeed after closing at 110.57 today, oil has been continuing lower in the overnight, hitting 109 just now at 1 AM EDT. This is also important because it puts oil back below the 110 level that Jim Cramer was getting so exercised over on his TV show last Friday (yes, I watch Cramer). I can only view this as being positive for stocks.

That said, the Dow's performance in recent days leaves a lot to be desired. The assault on the 12,450 level fizzled, and with today's close at 12,381, the 12,390 support level is now in serious question. In addition, all three futures are lower this evening by about half a percent. That is a significant level of decline that we can't ignore.

The VIX meanwhile closed at 16.6, the lower end of its recent daily ranges and just above its strong support level around 15.5. Thus the VIX continues to have more upside potential than downside. And notably, today's drop in the VIX was not accompanied by higher stock prices.

So all in all, I'm rather more bearish right now than I was last night and would not be surprised to see the market go lower tomorrow.


My two silver mining trades, MGN and GPL, after doing nicely yesterday, both got stopped out just above break-even today. Silver itself had its largest drop since February 24th and put in a bearish engulfing pattern that looked a lot like today's oil chart. I'll be watching to get back in at a lower level.

Meanwhile, I am now up to 33% in cash.  I'll discuss my reasons for this in a later post.

Monday, April 11, 2011

More mixed messages

I was wrong about Friday's action in the Dow.  We ended up with a 29 point decline which provides us with a bearish confirmation of the hanging man we saw Thursday.  On this basis, I'd say that we're going lower tomorrow.  Also, all of the daily indicators have peaked and are now headed lower, another bearish sign.

However, all three futures are actually up right now at 12:30 AM EDT with both the ES and YM up by 0.23%, and the NQ up 0.40%.  These are non-trivial numbers.  Also, the ES moved above its daily pivot which for Monday becomes 1326.  And the 12,390 support level on the Dow was tested on Friday but ultimately held.  And Friday's loss was on lower volume.

Also there is now news out of Libya that Col. Khadaffi has apparently agreed to a plan to end the fighting there (though I'll believe that when I see it).  That alone could account for the rising futures.  And oil, after a big run-up on Friday is actually down a bit in the overnight.

Meanwhile, the VIX on Friday jumped up to the top of its recent consolidation range to close at 17.87.  The 18 level is resistance for the VIX.  However, it still has more room to rise than to fall and that fact is bearish for stocks.

So there you have it - another night of mixed messages from the market.  I guess it all boils down to whether you want to believe the charts or the futures.  The charts suggest we're going lower tomorrow, the futures are guiding higher.  If the Libyan news proves true and oil goes lower, then we could move higher tomorrow.  But at this point, this is one of those times that's just too tough to call.  We'll just have to wait and see.