Friday, May 20, 2011

A third daily gain possible Friday

Last night I was unsure of today's market but was ultimately convinced we'd go higher on the basis of the Dow's candlesticks.  A two day pattern of a hammer followed by a bullish engulfing pattern is a very good indicator that higher prices will follow and that was just what happened, with a 45 point advance today.

Now we have to ask about tomorrow.  There's no guidance from the futures tonight at 1 AM EDT; they're all essentially flat on the evening.  We do have a clue from the VIX though.  It fell today right to its long term support at 15.5.  This suggests it may have a hard time going lower, though it did manage just that late last month.  Even then, I see a lot more upside potential in the VIX than further downside.  But since there's no VIX reversal just yet, I hesitate to call the market lower tomorrow on that basis.

Oil, however is up a bit in the overnight and with oil now in sync with the market, that would suggest a bullish bias for Friday.  And the RTC system suggests a positive outlook too, since today's green candle was entirely outside the descending trend channel.  That is the trigger following yesterday's bullish setup.

So all in all, I'm looking for slightly higher tomorrow, with gains limited by the limited downside left in the VIX.  The indicators are still oversold, providing at least some momentum to send us higher one more day.    A failure to go higher tomorrow would imply a lower close on Monday too.  Tomorrow's number to watch is 12,524, today's daily pivot.  We'll want to stay above this number.  Watch for support to kick in at that level.

Thursday, May 19, 2011

On the fence

My confidence last night about the market going higher today was rewarded by an 81 point advance in the Dow. The VIX came through for us in a big way today just as I expected. Always pay attention when you see a hanging man followed by a bearish engulfing pattern. As the VIX sank, the Dow rose.  And interestingly enough, the last two Dow candles were a mirror image of the VIX: a hammer followed by a bullish engulfing pattern.

But tonight's chart is the ES daily. The horizontal blue line is the important support/resistance level at 1338 representing the highs of February and early April, as well as the low of early May. After breaking below this line three days ago, we bounced right back up to it in one big pop today and that's exactly where we're sitting right now at 2 AM EDT. We were actually above this level earlier this evening and have been drifting lower since about 11 PM.

So that makes tonight's call a bit tough. Being as how the VIX has fallen back to its recent support level in the 16-16.25 area and how the ES is really sitting right on the fence, it's hard to say which way this will break tomorrow.

If we go by the descending regression trend channel you see in the chart, today's close took us outside the right-hand line and that is a bullish setup. If we can stay outside that point tomorrow, that will be a bullish trigger and I'll be looking for higher early next week. But given the difficulty the market has been having lately in putting together a winning streak of length greater than one, I'm a bit shy on making a call for higher tomorrow right now.  I'm doubly shy given the recent "fake out breakout" on the 6th.

But just for laughs, I'll say we're going higher (if only on the strength of the Dow chart pattern), though I'm not confident enough to take out a long ES position right now. BTW, my long ES from two days ago did quite well as a swing trade. I sold today at 1333.75 and caught eight points on that one.

Meanwhile, SLV is beginning to look attractive at 34.23.  The 0.618 Fibonacci retracement support held and the last four sessions give the impression that the bottom may be in.  But I'm not quite ready to pull that trigger just yet either.  Let's see what tomorrow brings.

Wednesday, May 18, 2011

The turnaround at hand

Hmm - well it looks like I was a day early on my call for a turnaround today, although the Nasdaq did actually manage to just barely turn positive.  But the half percent loss in the Dow means I blew it.  In retrospect, I think I should have paid more attention to the stochastic in the VIX yesterday.  Although it put in a hanging man, it wasn't just quite out of steam yet.  I believe it is now.  I also should have remembered my own observations on the VIX - it often leads the market by either one or two days.  In any case, yesterday's VIX hanging man was followed by a big bearish engulfing pattern today.  The two of those together is a very reliable indicator that the VIX will go lower tomorrow.

In any event, this evening we have some much better confirmation of expectations for higher tomorrow.  The ES today put in a doji after two straight days of losses and in this overnight it is now up a very significant 0.45%.  The NQ and YM are up similar amounts, at 1:15 AM EDT.  Also, although the Dow did close under its 12,530 support level today, it ended up forming a classic hammer.  That, coupled with oversold indicators, is a good revresal pattern.

Also, oil was up today (and is holding higher in the overnight) and for some odd reason, lately oil is in a positive correlation with the markets.

So much as I hate to follow a missed call with another call for the same thing (because if you keep doing that, eventually you'll be right) I have a lot more confidence in tomorrow closing higher than I did last night.  And to demonstrate that confidence, I took out a long position in ES at 1325.75.  (I actually did this yesterday, then took some nasty heat earlier today, but patience paid off in the end and I'm now in a profit position).

Tuesday, May 17, 2011

A shot at higher on Tuesday

Well I was right, unfortunately, about the market going lower today with the Dow going lower by 47 points on a very broad based sell-off. But tonight I want to bring up another daily VIX chart because it put in an important pattern today. While the VIX gapped up to close 6.85% higher today, it put in a classic hanging man. The hanging man is a very high probability top predictor

I looked at the daily VIX chart all the way back to the end of 2007. In this period, I found eleven other instances of a hanging man occurring at or near the upper Bollinger band. In all eleven cases, the VIX was lower the next day. This would imply that we have a shot at (finally) getting some gains in the markets tomorrow.

In addition, all three futures are all actually not down right now at 1:10 AM EDT for a change. OK, the ES is down a tiny 0.02% and the NQ is actually up just a hair, but the point is that we're not seeing the 0.2% to 0.5% drops we've been getting lately. And significantly, they've been trending higher all evening.

Finally, the Dow once again found support in the 12,530 region for the third day in a row. This number also puts it right at the bottom of a rising regression trend channel going all the way back to last June, nearly a year. This point (the bottom of the channel, not this particular numeric value) has been tested four times since then, and it has held each time. Also, the Dow indicators are now as oversold as they were during those four declines that bottomed out at the lower RTC edge.

Given this, I have to think we have a shot at going higher tomorrow. I almost hate to say it, given all the gloom and doom going around lately, but at least some of the tea leaves seem to be suggesting that. We'll see.


Meanwhile, SLV broke below its 0.5 Fibonacci retracement level at 33.85 to close at 32.85 today. The next retracement level is at 30.47. If SLV can't manage to go higher tomorrow, it's headed for this level.

Monday, May 16, 2011

Not looking good for tomorrow

I wish I could be more positive about tomorrow but right now at 12:45 AM EDT I don't really see very much positive in any of my charts right now.  On Friday the Dow put in a big red candle that looks a lot (though not exactly) like a bearish engulfing pattern  On the other hand, the Dow has found support at the 12,540 level for two days running ad its indicators are now closer to being oversold than overbought.

The VIX however looks to me like it has more potential to rise tomorrow than to fall, implying stocks go lower.  And all three market futures (ES, NQ, and YM) are down right now, the ES in particular down by a significant 0.43% on a Sunday gap down opening.  None of this is very good.  However, note that the ES is right at an important support level now at 1329.  If we fall below this between now and the open on Monday, then I'm definitely looking for lower tomorrow.

Either way, the entire gestalt of the market has me feeling that the time to "sell in May" may in fact be at hand.

And who knows how the market will react to the news that the big kahuna of the IMF got caught with his pants down, literally, tonight.  Not that it should make a whit of difference to the price of stocks, but lately the market has been acting more squirrely than usual with respect to news events.  I guess we'll just have to see.