Last night I wrote that we had a good shot at going higher today, even after two days of impressive gains, and that's just what happened today. Take a look at this daily Dow chart. The interesting thing here is that we have now formed a "three white soldiers" candlestick pattern (OK, they're green, but you get the idea). You don't see this happen very often and it is generally quite bullish. We note also that tomorrow is a Friday and also the end of the month, and that is also bullish historically.
Then we have the futures, which are just turning positive at this hour (1:30 AM EDT) after meandering about earlier in the evening. Meanwhile the VIX closed near the bottom end of its new 14-16 range at 14.62. While this would suggest that the VIX has more room to rise than to fall from here, there is still just enough wiggle room left for the VIX to go a bit lower tomorrow before reversing, thus fueling higher stock prices.
And with the Dow now at 12,763, we still have over 200 points to go before hitting the next resistance mark at 13,000. I don't think we'll be up that much tomorrow, but I do think we'll close the day and the week at least somewhat higher than today.
Well the market certainly reacted positively to all the Fed hoopla today with a nice 96 point gain in the Dow. And right now (12:45 AM EDT) it's looking like there may be still more upside to go tomorrow. The last two days of April are historically strong and all three futures are up by 0.12% to 0.3%.
Additionally, the Dow has now put in two strong green candles taking us convincingly up over the 12,450 resistance (now support) level. The further we get from that point, the weaker its attraction becomes. Today's close at 12,691 also puts us squarely back in the center of the rising regression trend channel going all the way back to last July. And there is now no resistance until the psychological 13,000 level last visited almost exactly three years ago in 2008.
Meanwhile, the VIX is now trading in a new range of 15 to 16. With its former support around 16 now resistance, the VIX may have some trouble going higher from here. And with the market once again ignoring the price of oil which has resumed its speculation-driven march upwards, it looks like the headwinds I feared earlier this week have pretty much subsided.
The only negative in the picture right now is that the Dow indicators are all in overbought territory. However, as we've seen so often in this rally that began last July, the indicators can often show overbought and then just remain that way for days on end. So my best guess is that we're in for a higher close tomorrow, and most likely Friday too.
I bought some Lowe's (LOW) yesterday at 26.38; it closed today at 26.74. I also bought a bit more MFA, ZTR, and HIMX for my Low Price/High Yield portfolio.
Well, turns out I was very wrong about the general market direction today. I really wasn't expecting an advance today, much less such a strong advance. But I was very right about SLV. It closed at 44.03, down $1.80 today (though it recovered to 44.96 in the after hours). I will now be waiting for signs of a turnaround to get back in. Look at the chart again - yesterday was about as classic a textbook top as you're ever going to see.
Other than that, there's not much to say tonight. The technicals are now looking strong for tomorrow, but with a Fed announcement and Uncle Ben giving a speech there's way too much uncertainly for me to try and make a call. Tomorrow will be mainly news-driven, not technically. I'll mostly be watching and waiting. We'll see what happens.
"it looks like we're going to go lower if not tomorrow, then on Tuesday."
And lower is just what we got today, with the Dow dropping 26 points.
But before we go any further, I want to show you this truly amazing chart:
This is the daily chart of SLV, the popular Ishares silver ETF. I usually like to wait for some sort of confirmation before calling a top, but if this isn't a top, I'll eat my short hat. Notice how SLV, which has been rising steadily for ages, suddenly went exponential on Aprill 14th. After that, it not only went up every day, it gapped up every day. Then today it hit a record 47.00 before retreating to close at 45.83.
And take a look at the eye-popping volume. Exactly when it started going exponential, the volume picked up, culminating with today's amazing 190,000,000 shares, more than double yesterday's. This is a classic blow-off top. The stock goes exponential, finishing with a hanging man on very high volume. The next day is generally lower. I have enough conviction in this pattern that I sold 3/4 of my SLV holdings today at 46.48, and these were practically heirloom shares that I bought way back at 11. I think that ultimately silver can go even higher, but this particular party that began last September is about over for now.
Anyway, back to the Dow. The Dow's latest weekly candle was also a hanging man and today's candle was also a hanging man. In addition, today's close at 12,480 took us to the right edge of the three day ascending regression trend channel, and that is a bearish setup. And the indicators are all now firmly in overbought territory.
Then yesterday I noted that the VIX seemed to have a lot more chance to go up rather than further down. And it did in fact rise today, closing at 15.77. As I've noted before, when you see the VIX put in a bottom, that is also a reversal signal for stocks. For tomorrow, the VIX still has plenty of room to run.
And finally, all three futures (ES, NQ, and YM) are lower right now at 1 AM EDT, though admittedly not very convincingly, being off less than 0.1%.
So technically, I'd say that my call last night for a lower market on Tuesday is still valid. The only possible wild card in this mix is the fact that Uncle Ben Bernanke is going to deliver a speech on Wednesday. Now I can't exactly imagine him giving a speech designed to tank the markets, but there's never any telling how these things will play out. So I'm looking for another slightly lower day as the players position themselves for the real action which will unfold on Wednesday. Then we'll see. That's all she wrote.
In addition to unloading my SLV today, I sold my Alcoa (AA) at 16.85. And I sold Henry Schein (HSIC) in my IRA.
This evening we have the VIX sitting at its lowest level in four years. At 14.69, it seems to have a lot more room to rise than to decline further. In addition, as of Friday, both the Dow and S&P indicators entered overbought territory. The Dow hit its upper Bollinger band and the S&P is close.
On the other hand, we do have all three futures up at this hour (12:45 AM EDT), but only by small amounts around 0.1%. The ES, at 1332.50 is close to an important resistance level at 1338.
However, we have not yet seen a reversal candle on any of these charts. And there certainly is no indication of a reversal from the rising regression trend channel, if you can call three up days a trend, given the choppy action of the past few weeks.
Based on all this, I suppose it's possible to see a bit more of a push higher tomorrow, especially if we get some more positive earnings reports, but technically at least there seems to be more risk than reward short term in this market. So it looks like we're going to go lower if not tomorrow, then on Tuesday.
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.