Friday, June 24, 2011

Friday prospects looking good

Give it a rest

Technical analysis is a great tool and I use it all the time, but I'll admit that there are times when you need to give it a rest.  I believe that tonight is one of those times.  Technically, the daily Dow chart looks like it's rolling over again.  Four nice up days, then a dark cloud cover and another down day today  Not so hot.  Then all the indicators have peaked at oversold levels and started heading lower.  That's usually a bearish sign.

But not tonight.  I am going to call tomorrow higher right here and now because I believe the market is now in one of its news-driven modes rather than its usual technical mode.  And the news today is quite bullish.  First we had the big oil dump which sent the price of crude lower.  Next we're hearing positive noises about the EU and IMF  concerning the Greek problem.   And now we hear that the Premier of Communist China made comments in the Friday edition London's Financial Times to the effect that he's declaring victory over inflation.

The futures are definitely liking something right now, with all three in the green, and I'll bet this is what's driving them.  ES in particular  is up nearly six tenths of a percent at 1:30 AM.  And at 1284.50, it is well above Friday's daily pivot of 1271.58.

Now I'll admit that today's Dow candle could be taken either as a hanging man if you consider it as a termination of our earlier four day winning streak, or a hammer, if you take it as a reversal of yesterday's losing session.  I'm leaning more to the hammer theory at this point.

Then the VIX put in one of these topsy-turvy days where it closed higher on a gap-up red candle.  When the VIX has one of these gaps up in the middle of its Bollinger bands, it very often tends to resolve by filling the gap.  If tomorrow holds true, then the VIX should go lower, and stocks higher.

Given all of this, I'd be nervous going into Friday with my short hat on.  I'm three for four on market direction calls this week.  Let's see if I can make it four out of five.

Thursday, June 23, 2011

Lower Thursday looking more likely

Last night I wasn't quite sure how today would go, though I was feeling a bit negative about things.  Well we were actually up a good part of the day until Uncle Ben came to my rescue by tanking the market with his speech this afternoon.  Thanks, pal - you helped me improve my record for the week so far to 2 out of 3.

In a way, he made my job easier for tomorrow though.  Today's Dow candle ended up forming basically a bearish dark cloud cover.  The bullish trigger I was looking for out of the May 2nd descending RTC did not occur, so we remain in that downtrend, just.  Today's 80 point drop also caused the RSI and momentum to put in an overbought top.

Meanwhile, the VIX put in a second hammer today.  It's 18.52 close left it just under  its 200 day MA at 18.79 and its daily pivot at 18.68.  And its indicators inched closed to showing oversold.  It's looking like the VIX would rather go higher tomorrow than lower, a bearish sign for stocks.

Looking at oil next, it appears to have put in a daily bottom yesterday and could move higher tomorrow.  That's also bearish for stocks since oil is now back in an inverse correlation with the markets.

Turning to the futures, they're all lower by about a third of a percent at 1:30 AM EDT.  Tomorrow's ES daily pivot is 1284.33, virtually the same as today, and we're already well below that at 1275.25.  We won't go higher unless we can break above this level.

Put it all together and what do you get?  Looking for lower once again.

The weekly charts, on the other hand are a different matter.  I think we're pretty safe from hitting any 200 MA's this week.  The Dow weekly chart right now is looking extremely oversold.  We'll take another look as this week's candle fills in.

Wednesday, June 22, 2011

Looking a bit negative for Wednesday

Sunday night I was wrong in calling the market lower for Monday, but I kind of redeemed myself by looking for higher today.  We got that in a big way with a 110 point pop in the Dow.  Today's action, coupled with three consecutive previous up days, makes the theory of a down week look a lot less likely.  And the 200 MA intercept I've been predicting for Friday - well I think we can fugeddabout it.

The Dow is now completely out of the June 1st descending RTC.  The RTC worked perfectly here.  Friday was the setup, Monday we cleared the line and that was the trigger.  Today was the payoff.  In fact today's gains now give us a bullish trigger on the longer term May 2nd descending RTC.  We also handily cleared the 12075-12,100 resistance zone today - also bullish.

That said, I'm not so sure about tomorrow.  The VIX did in fact go lower today, but it put in a classic hammer in the process and that's a reversal candle.  It also found support right at its 200 day MA which could help keep it from continuing lower.  VIX no lower, stocks no higher.  And all three futures are lower, though not particularly convincingly so.

So I don't know.  The whole setup is looking a lot like what we saw back on May 24th through the 31st, almost candle for candle, and I sure got burned jumping over those candles.  So now I need the Dow to put in a green candle entirely outside this May 2nd RTC before declaring the downtrend over.  I sure don't want to get fooled by that one again.

And then tomorrow is a Fed day again, so there's no telling how that will affect the charts (though I do not expect any real earth shattering statements from them tomorrow).  So bottom line: my bias for Wednesday is slightly negative, but I'm not really confident about it.  It will be a key day technically to determine if we can break our month and a half long down trend.

Tuesday, June 21, 2011

Another up day possible Tuesday

Oops.  What can I say?  I thought for sure we were going lower today.  In retrospect, I let the recent wave of negativity, along with some bad futures numbers late last night overcome my views of the technical indicators which have been screaming "oversold" for some time now.  I also failed to give enough weight to the all-important VIX which hit its upper Bollinger band.  That in itself is always a bullish sign for stocks.

And that was the problem, because after seeing oversold indicators for so long, but still going lower, eventually you stop believing in the indicators, like the boy who cried wolf.  But in the end the indicators came though and we went up today, an impressive 72 Dow points, not down as I had thought last night.

Now this presents us with an interesting problem.  With three consecutive up sessions, I have to wonder if the Dow is going to encounter the 200 day MA this Friday after all.  Today's close at 12,076 parked exactly along a two week long resistance line.  Tomorrow's action will be key.  If we can break up above this level, then I'm more encouraged for the end of the week.  Today's action, a long green candle, was bullish enough.  We broke over the daily pivot around 10 AM and it was up up and away from there.

Similarly, ES broke above its daily pivot yesterday and hasn't come back since.  Tomorrow's pivot is 1267.25.  We're comfortably above that at 1274.75 right now at 1:25 AM EDT.  All that's left is to see if we can finally put in a higher high, something that hasn't really happened since the beginning of May.  That would be quite bullish.

In the meantime, we have exited the Dow's June 1st descending RTC, also a bullish sign, but we remain inside the longer May 2nd descending RTC, so that trend remains down.  However, it will only take two days to exit that one if we continue along the lines of the last few days.  And if that happens, that would really be bullish, given the week historical nature of this week in June.

Finally, with the VIX taking a big tumble today from its upper Bollinger band (as I thought it would) and all three futures up by non-trivial levels I have to go with my long hat for tomorrow.  I could be wrong.  God knows I was today.

Sunday, June 19, 2011

The Week Ahead

So much for streaks

Well I guess it turns out  that six was the magic number.  Last week the Dow snapped a record but one losing streak at six weeks in a row, with a 43 point gain to finish the week up a modest 59 points.  So for the folks holding out for a record tying seven straight week down, close but no cigar.

In a way, I would have been happier if the week had ended lower.  That would have decreased the historical odds that this coming week would end lower.  Had we gone down seven weeks in a row, that would put us in record territory, since the Dow has never gone down more than seven in a row, at least not in the 82 years a I looked at (see earlier posts).

Greece is the word

So where do we go next? A tip of  the Hatlo hat tonight to Greg Salvaggio, a senior vice president for Tempus Consulting who made what I'm going to call the Quote of the Week:
The ECB made a valid point: if it was Greece alone they’d let it default, but there’s a strong argument for the contagion effect and the precarious state of markets since the financial crisis,"
So there you have it: Domino Theory, 2011. As Greece goes, so go we all. If we can avert this modern day Greek tragedy, undeserving though they may be, we may yet avert the dreaded double dip.

 The lessons of history

So much for the good news. Now here's the bad news, courtesy of The Stock Traders Almanac:
"Week After June Triple Witching, Dow Down 11 in a Row and 18 of Last 20"
Holy moly, 11 in a row??  Last week I asked if you were really going to fight the odds that the market could continue lower after six straight down weeks. Tonight I have to wonder about these particular odds.  18 out of 20?

The futures

But, but - tonight we take a look at the ES futures, and note that we're now looking at the September contract, ES U1.
Since it's a new week, here's the weekly chart. Two things jump out: we're technically quite oversold, and we're at a decent support level at 1263 (blue line). After two long red candles, last week formed a doji, indicating classical indecision in the market. this is a reversal indicator, though admittedly one that requires confirmation.

The RTC for the daily ES chart shows that we have exited the descending channel that began on June 1st. That is a bullish setup. The Dow is still headed for an unpleasant encounter with its 200 day MA as I've discussed previously, however, the momentum of its descant seems to be slowing.

I think Monday's action will set the tone for the entire week. I'll have a better idea later on tonight when I can get a handle on the overnight - come back around 2 AM for an update.

Late night update

Well, it's 1:30 AM and the futures have spoken.  All three are down and ES is not only down more than half a percent, but at 1259.25 it's a full 8 points below Monday's daily pivot at 1267.25.  And that also means the 1263 support line caved in just like that.  Apparently Greece may be the word but it isn't the last word, and traders are not impressed by the Europeans' latest can kicking efforts.  At least not tonight.

So while we do have some mixed signals among the tea leaves for the week ahead, I think we're going lower tomorrow.