Friday, May 27, 2011

Make or Break

Last night I suggested that the Dow could still go higher today and while it wasn't looking too promising early on, we finally did manage to eke out an 8 point gain.  It's not much, but it is higher.  The problem with today's action was that it formed a long spindly doji, indicating considerable indecision as to market direction.  We are also still inside a descending regression trend channel that began on May 10th.  It will take at least two more days of gains like the last two days before we reach the right-hand edge and a bullish setup.

On the other hand, the Dow is only now just coming off its oversold indicators and they are nowhere near the point they were at the last three market tops this month.  That suggests that even if we continue in the monthlong downtrend, there's still room for some upside tomorrow.

The VIX tends to support this idea.  It put in a big red candle today to close at 16.09.  In fact the size of the decline suggests that the market should have gone higher today, so maybe it will tomorrow.  Is the VIX ready for a reversal?  Not just yet.  It has not support until the 15.5 level it hit on the 19th.  And then its lower Bollinger band is at 14.95, suggesting the VIX could easily go lower tomorrow, implying higher stocks.

And all three of the ES, NQ, and YM futures are up this evening (at 1:20 AM EDT), with ES up 0.17%.  Not a huge gain, but it still lends weight to the bullish thesis.  Then we have oil creeping higher in the overnight and as long as oil remains in a positive correlation with the market, this too is bullish for stocks.

And last but not least, the dollar did indeed go lower today as I suspected.  It did find support at its 40 day MA, but the tall red candle at the end of three earlier declines suggests that it has room to go lower tomorrow again.  And like the correlation with oil, the dollar is keyed to the market, only in an inverse correlation.  Dollar lower, stocks higher.

Finally, tomorrow is a Friday, the last Friday of the month, and also the Friday before Memorial Day.  Historically, that is a least slightly bullish.  Volume is likely to be light with many of the pros already packing up for the Hamptons or other Memorial Day weekend getaways.  So I'm not looking for any major swings, but the tea leaves do seem to favor the long side for Friday.  But it's kind of a make or break.  A down day tomorrow will cast doubt on next week too.

And my AKS trade is still cooking.  AKS popped nicely through its 200 day MA on increased volume for a 2.17% gain today and that is very bullish.  And so far no indicators are showing oversold and the weekly chart looks even stronger than the daily.  Good trading is knowing when to hold 'em and when to fold 'em.  We're going to hold AKS a while longer.

Thursday, May 26, 2011

The VIX comes through

Well, it looks like the VIX trumps the futures.  Last night I was worried about the prospect for a rally today because although the VIX was falling, generally an indicator of higher stocks to come, the futures were all down fairly substantially.  As it turned out, the VIX predicted the market once again and we were rewarded with a pleasant 38 point advance in the Dow to break a three day losing streak.

Not only that, but the gain came in the form of a pattern that resembles a piercing line (though not quite).  That, along with indicators that are all looking to be bottoming at rather oversold levels, suggests that there is more room to rise on Thursday.

Meanwhile, the drop in the VIX today brought it back to the middle of its Bollinger bands, with all of its indicators descending and its short stochastic in particular executing a bearish crossover.  This suggests the VIX has room to fall further and that in turn suggests higher stock prices tomorrow too.

Then we have the futures.  ES, NQ, and YM are all up right now at 1 AM EDT, with ES leading the way at +0.27%.  ES has now exited its descending RTC channel going back to May 19th and that is a swing trade bullish trigger.

Oil meanwhile rose back over $100 today and since oil is still moving in sync with the market these days, that's also bullish.  And the dollar, using my $USDUPX chart looks to be ready to continue filling the gap it formed after its big jump on Monday - also bullish for stocks.

So there you have it.  All of the tea leaves seem to be in agreement tonight.  I'm reaching for my long hat and would be most surprised if we didn't get another advance on Thursday at least as good as today's.

Finally, my AKS trade from yesterday is doing well.  AKS closed at 14.72, up 0.28. AKS is now right at its 200 day MA.  If it can move past that tomorrow, I'll hold on.  If not, I'm outta there.

Wednesday, May 25, 2011

Show me the money

My forecast for a higher close today was looking pretty good until a wave of selling kicked in at exactly 3:25 PM (still not sure what event triggered that) and turned a 30 point gain into a 25 point loss.  The Dow now has some minor support at 12,340, then some stronger support around 12,250, then nothing down to the psychological support at 12,000 even.

And that's worth looking at now because despite some pretty oversold indicators, this market is looking nothing but weak.  And even worse, all of the futures are lower right now at 12:45 AM EDT with the ES being down 0.6%, and that's pretty substantial.  That said, the ES indicators are even more oversold than the Dow.  In fact they're about as oversold as during the Japan reactor panic back in March.

I also note that at least my call on the VIX was correct.  It did indeed retreat today from yesterday's pop above its upper Bollinger band.  Given the propensity of the VIX to predict the market a day ahead, you'd think that we should be looking for some gains (finally) tomorrow.

Still, this big drop in the futures seems to be hinting that someone knows something I don't.  This has me feeling rather uneasy this evening.  Although technically it looks like a turn should be imminent, I can't really be as optimistic about the market right now as I was last night.  I mean, the market has to turn sooner or later, and having come down so far I think it will be sooner rather than later but at this point, it is going to have to show me that the bottom is in before I can reach for my long hat again.


That said, today I picked up some of the gold miner AUY at 12.33; it closed at 12.35.  AUY has been beaten down from its April highs and appears to have put in a bottom last week.  Its indicators are all still low and its short stochastic has executed a bullish crossover.  And it popped out of its descending RTC channel going back to April 11th, which is bullish.  The fact that it's been holding its own during the recent market decline is also attractive.  So we'll give this a shot and see what happens.

Tuesday, May 24, 2011

The tell-tale VIX

Last night's post was titled "Looking grim" and today the Dow plunged 131 points - in the first minute of trading - grim enough for you?  The Dow sliced through its 12,450 support level and kept on going  Things are really looking bad now - or are they?

Let's start with the indicators. The Dow has now fallen into definitively oversold territory, with the RSI and momentum at or below levels from which rallies have started in the past.  And the stochastic is getting ready to execute a bullish crossover.

Next, we have the price of oil.  As I mentioned, oil is now in a positive correlation wit the market.  Today, oil was down, market was down.  Well in this evening's trade, oil is up - a bullish sign for stocks.

And then we come to the futures.  Whereas last night all three of the ES, NQ, and YM were down down down, tonight they're all up, by 0.21%, 0.15%, and 0.2% respectively.  While not major gains, it's significant that at least they're not continuing to drop in the overnight (at 1:40 AM EDT).  And the trend has been steadily upward since around 7:30 PM this evening.

Next we look at the dollar index.  I don't get the DXY anymore since the NYFE decided to hide it behind a paywall, so I use the $USDUPX, the Deutsche Bank US Dollar Index, which is still free, instead.  And this index put in 2/3 of a bearish abandoned baby pattern today with a hugely gapped up doji.  If the DUPX is lower tomorrow, watch for the dollar to decline still further.  And since the dollar and the market are in an inverse correlation these days, that will be bullish for stocks.

And last but most definitely not least, we have the VIX, which for once is giving some real guidance, in the form of a big gap up today that took it not just to its upper Bollinger band, but above, opening at 20.03.  The VIX was all downhill after that, putting in a tall red candle.  That kind of action almost always signals a lower VIX the next day and if not then, then one day later.  A lower VIX implies higher stocks.

So all in all, I'd say we're in for some higher stock prices, if not tomorrow, then definitely on Wednesday.  I'd say there's a fair chance of higher tomorrow and an even better one on Wednesday.  We'll see.

Monday, May 23, 2011

Looking grim

With the futures all down at this hour (1 AM EDT) by half a percent or better, oil taking a tumble down to 98.55 (remember, oil and the markets are moving in sync lately), the ES short stochastic making a bearish crossover tonight, the VIX coming off a big gain on Friday, and the dollar rising thanks to some Greeks who can't balance their checkbooks, there's no need to trot out a chart tonight.  I'm just not feeling the love here.  We're going down tomorrow.

Later this week may be a different story though.  While last week's two day mini-rally seems to have gotten short-circuited just like the one on May 6th through 10th, the Dow is close to its important12,450 support level.  I note also that the last two daily Dow stochastic cycles have been very odd.  Instead of their usual oscillation between high and low values, they've been traveling between low and only neutral.  Since we're now in a descending phase from a middling level, we should reach the next bullish reversal sooner.  And even more strange, the Dow RSI is now in oversold territory.

But I really don't think we're in for higher prices tomorrow.  Of course, I could be wrong.  Lord knows I was on Friday, when I thought we'd go higher and the Dow sank 93 points instead.  But hey, it could have been worse.  At least I didn't predict that the world was going to end at 6 PM last Saturday.

In the meantime, the market now seems to be in one of those herky-jerky periods I despise.  I guess it's great for the day traders, but I don't like it.  Maybe I'll take some time off for a while.