Some higher still Friday but watch for profit taking

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Friday higher, medium-low confidence.  Bull-bear ratio is 8:1.
• ES pivot 1149.00.  Falling below would be bearish..
• Next week bias lower, on technicals.
• Monthly outlook: bias up, on technicals
• ES Fantasy Trader going long at 1158.00.

Recap

Last night I called the market higher again today and that's what we got.  Today's action was pretty much a slow and steady uphill march with no big pop off the open, unlike many recent sessions.  Interestingly, the bears refused to come out to play at all today and the market put in a final push higher into the close, exactly as it did the past two days.

The technicals

The Dow: Put in another strong performance today, gaining 183 points and busting right through the resistance at 11K like butter to close at 11,123 on a good short-wick green candle.  We're now nearing a band of resistance from 11,190 to 11,315 that proved unbreakable last month.  Can we push through this time?  I don't think so.  It looks to me like there's less gas left in the tank now than during the last attempt in September.  In particular, note that volume has been declining the past three days even as the market has been advancing.  However, there's still no reversal pattern on the chart just yet so it has to go to the bulls, +1.

The VIX: Continued lower today, as I called last night for the third day in a row, though the rate of decline is slowing.  The VIX is now down to halfway between Bollinger bands but has no real support there.  Its indicators are all now closer to oversold than overbought, but there is still  more downside possible here Friday, so +1 bulls.

VIX futures: Once again, this chart mirrors the VIX itself, though the decline seems to be nearing an end.  I'd say we may reach a turning point early next week at this rate.  But for now, it's still +1 bulls.

ES daily

Market index futures: The chart patterns tonight are looking just like last night and the night before with all three futures basically unchanged at 1 AM EDT but drifting slowly up in the evening hours.

On Tuesday ES closed outside of its descending daily regression trend channel (see chart at right).  That was the bullish setup.  Today ES traded entirely outside the channel.  According to this trading technique, that is a bullish trigger, meaning Friday should run higher once again.

Supporting this idea is that while the indicators are now approaching overbought levels, none has yet peaked.  And importantly, ES has no resistance until 1170 (blue line).  That still leaves about a dozen points to go.  All of this nets +1 bulls.

ES daily pivot: With the raising of the pivot to 1149.00, we're now considerably closer, though still above.  With ES at 1157.50, the pivot is close to being in play.  I'd watch this number carefully throughout the day tomorrow for clues to the close.  Holding above or bouncing off is bullish, falling through, bearish.  Since we're above right now, it goes to the bulls, +1.

Dollar index: The dollar continued the downward move it started on Tuesday, slicing through initial support.  Now at the bottom edge of its rising regression trend channel, its still overbought indicators suggest more downside to come.  Should the dollar fall again tomorrow, watch for it to drop even further next week. +1 bulls.

Oil: Last night I wrote that "oil will continue higher on Thursday" and so it did, with its biggest gain in a month.  But even this tall green candle neither brought oil to overbought levels nor to any resistance point, so with oil in sync with the market that's another +1 bulls.

Morningstar Market Fair Value Index: Today the index rose, for the first time since 9.29, to 0.81.  That's +1 bulls.

History: According to The Stock Traders Almanac,the first week of October underperforms.  And tomorrow we "celebrate" the week of 10./10/08, the worst week in the history of Wall St.  So +1 bears.

     And the winner is...

The bulls again, by a bull-bear ratio of 8:1.  While this all sounds positive enough I'm getting the feeling that this rally is getting long in the tooth.  There may be enough gas left in the tank for one more push higher, but the high may be intraday followed by some profit taking into the close as traders want to book some of the nice profits they made the past few days and don't want to be long into the weekend with the European situation still rumbling.

So I'm looking for a bit more upside Friday but not necessarily a higher close.  With the charts approaching overbought levels, that's getting too tough to call.  I'd exercise caution Friday and pay close attention to the ES pivot.  If we drop below it and don't come back quickly, I'm changing my call to a lower finish.

ES Fantasy Trader

Today we took a profit of 10.5 points.  Left some on the table again, but such is life.

Portfolio stats: the account is now $151.625 after 23 trades (17 wins, 6 losses) since inception on 8/18 with $100K. 
 

BOT    10    ES    false    DEC11 Futures     1134.25    USD    GLOBEX    00:46:12   

SLD    10    ES    false    DEC11 Futures     1144.75    USD    GLOBEX    10:39:09 

Tonight we're going long at 1158.00

Higher again Thursday

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Thursday higher, high confidence.  Bull-bear ratio is 9:0.
• ES pivot 1127.59.  Watch for any break under..
• Rest of week bias uncertain, lower possible Friday.
• Monthly outlook: bias down, on technicals
• ES Fantasy Trader going long at 1134.25.

Recap

Last night I called for some more upside today and indeed we were well rewarded with another 131 point gain in the Dow.  We were strong out the gate and then just drifted higher the rest of the day without the mad and maddening yo-yo swings of recent sessions..

The technicals

The Dow: Put in a strong green candle but left us with mixed indicators.  RSI turned lower and OBV is at levels associated with a top, but the stochastic just made a bullish crossover.  With no resistance til 11,000 and no reversal pattern on the chart, I tend to believe the stochastic and give this one +1 bulls.

The VIX: Last night I wrote "more downside for the VIX Wednesday" and that's just what we got today with the VIX down another 7.4% on a solid red candle.  But even at that, the indicators are still all just coming off overbought.  And finally coming down out of Psycholand (the region above 40) can only be a good thing, so +1 bulls.

VIX futures: Again tonight, this chart looks like the VIX itself, reinforcing my belief that we have lower to go Thursday.  That's also +1 bulls.

Market index futures: All three are basically unchanged at 1 AM EDT.  In fact, the ES chart looks a lot like it did last night.  With no reversal pattern in sight and a stochastic just coming off oversold, I see nothing bearish here, so +1 bulls.

ES daily pivot: Now 1127.59.  ES being seven points above this now, we're just on the edge of gravitational attraction.  The pivot is always worth watching, but without some external influence I don't think it will be a factor tonight.  +1 bulls.

Dollar index: Finally!  The dollar came down today on a big red candle confirming last night's doji as a top.  Its stochastic also executed a bearish crossover today.  Even though it remains in its rising regression trend channel, it looks likely to go down at least a bit further from here, so +1 bulls.

Oil: after some confusing signs last night, oil finally did reverse and go higher today.  With new support established and its stochastic making a bullish crossover today, it looks like oil will continue higher on Thursday, so +1 bulls.

Morningstar Market Fair Value Index: Today the index rose from 0;77 to 0.79, so +1 bulls.

History: According to The Stock Traders Almanac, tomorrow is actually a positive day, so +1 bulls.

     And the winner is...

The bulls, by a shutout with a 9:0 bull-bear ratio.  Technically, I'm reasonably confident we're going higher again Thursday, as long as Greece can avoid collapsing overnight and the members of the ECB can keep their mouths zipped for a day or so.  Enjoy it while it lasts.  While this market still seems to have the mojo right now, I think Friday may go lower.

ES Fantasy Trader

Closed today's trade at 1125.75 for a nice 15.5 point gain.  Once again, I left some money on the table, but no one ever blew up their account doing that.  There's simply no point being greedy.

Portfolio stats: the account is now $146,375 after 22 trades (16 wins, 6 losses) since inception on 8/18 with $100K. 

BOT    10    ES    false    DEC11 Futures     1110.25    USD    GLOBEX    01:25:39
SLD    10    ES    false    DEC11 Futures     1125.75    USD    GLOBEX    11:07:52
 
 Tonight we go long again at 1134.25.

More upside for Wednesday

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Wednesday higher, high confidence.  Bull-bear ratio is 6:2.
• ES pivot 1100.42.  Current price is above that.
• Rest of week bias uncertain, resumption lower possible by Friday.
• Monthly outlook: bias down, on technicals.
• ES Fantasy Trader opened new long position at 1110.25..

Recap

Another nutty day on the Street, courtesy of the VIX and continuing noise from Europe.  We were down big, then up, then down, until the Dow finally took off like a rocket at 3:10 PM on YAR (Yet Another Rumor) in the FT.  I don't even remember what - something about J.C. "Zut Alors" Trichet approving of the new Beaujolais vintage, I think.  Whatever, it was good enough to propel the Dow to a 153 point gain.

The technicals

The Dow: While the intraday chart looked like a map of Space Mountain at Disneyland, the daily formed a nice looking hammer, right at support and with indicators finally starting to look oversold.  We also broke back over 10,730 resistance with a close at 10,809 and no face no further resistance until the 11K level again.  That's good enough right there for +1 bulls.

The VIX: Last night I wrote "the VIX is looking toppy here", and today the bottom fell out with the VIX taking a 10% dump on a long solid red candle.  Never discount a VIX hanging man that's hanging off the upper BB.  That one is a slam dunk.  With indicators still quite overbought and the stochastic executing a high reliability bearish crossover, it looks like more downside for the VIX Wednesday, implying higher stocks.  +1 bulls.

VIX futures: This daily chart looked just like the VIX, so the same analysis goes, meaning another +1 bulls.

Market index futures: ES, NQ, and YM are all running slightly in the red with ES down 0.2% at 1:15 AM EDT in rather directionless evening trading.  But the day's candle, a nice hammer/bullish piercing pattern was encouraging.  With the ES daily stochastic just executing a bullish crossover and OBV setting up for only the fourth hook upward since the Z contract began trading, this all adds up to +1 bulls.

ES daily pivot: Virtually unchanged today at 1100.42 and trading above since 3:40 this afternoon.  Holding higher is bullish, so +1 bulls.

Dollar index: Once again I called for a lower dollar today and once again I was proven wrong.  Not so much because the dollar is so wonderful, but simply because the euro is so rotten.  But today the dollar finally showed a reversal sign, in the form of a an evening star doji.  This one is high reliability.  Coupled with even more oversold indicators, I will (sigh) once again call the dollar lower Wednesday.  Hey, I've got to be right sooner or later.  That's +1 bulls.

Oil: Last night it looked to me like oil was slipping again and indeed it did go lower today.  It has now broken all support.  However, its indicators are now quite oversold.  Oil's weekly chart is showing a developing hammer and it looks to have more upside than downside from here.  On the other hand, oil went down and the market went up today indicating a possible reversal in the relationship between the two.  Because of this confusion at the moment, no oil points awarded tonight.

Morningstar Market Fair Value Index: Today the index  actually declined to 0.77 from 0.79.  That's the lowest level since April 1st, 2009.  But since it's still going down, it's +1 bears.

History: According to The Stock Traders Almanac, the first Wednesday rates a little bear head, so that's good enough for +1 bears.

     And the winner is...

The bulls, with a bull-bear ratio of 6:2.  That's good enough to call the market higher Wednesday on technicals.  But as always, and I hate sounding like a broken record but it remains true, with the VIX still in Psycholand, any kind of news, or even rumor, good or bad, from Europe will trump any technical call.  Caveat trader.

ES Fantasy Trader

Closed today's trade at 1094.50.  With the VIX still in outer space, I thought discretion was the better part of valor and at these levels one takes profits where one finds them.  I found 5.75 points during lunch time.

Portfolio stats: the account is now $139,625 after 21 trades (15 wins, 6 losses) since inception on 8/18 with $100K.

BOT    10    ES    false    DEC11 Futures     1088.75    USD    GLOBEX    OCT 4 01:08:58
SLD    10    ES    false    DEC11 Futures     1094.50    USD    GLOBEX    OCT 4 12:21:25

Tonight we go long again at 1110.25.

Tuesday higher on oversold rally

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Tuesday higher, medium confidence.  Bull-bear ratio is 4:5.
• ES pivot 1101.67.  Current price is slightly below that.
• Rest of week bias uncertain, oversold bounce possible midweek.
• Monthly outlook: bias down, on technicals
• ES Fantasy Trader going long at 1088.75.

Recap

Last night I called for a lower Monday and boy did we ever get one with the Dow diving 258 points to finish at session lows.  It was bad, really bad.  We kissed the 11K level goodbye and then went on to bust through the August/September support at 11,730.  All that stopped the Dow today was its encounter with its 200 week moving average at 10,648.

Also of note is that the SPX gave up the 1100 level today.  And it went under its own 200 week MA three days ago.

This makes tomorrow crucial.  If we break under the 200 week MA, then we're headed to 10,450 for sure.  Let's shake the Magic 8 Ball once again and see where we're headed Tuesday.

The technicals

The Dow: Today's ugly 2.36% decline on a long red candle going below support gives us nothing to cheer about.  Even worse, its indicators are not particularly oversold.  And even worse than that, the RSI is actually increasing and OBV remains stubbornly high.  So even though we hit the lower Bollinger band today, this is not the stuff reversals are made of.  I'm really not feeling the lvoe here and it's +1 bears.

The VIX: Last night I wrote "the VIX could still go higher tomorrow".  And so it did, jumping an additional 5.8% to close at a crazy 45.45.  This number is so high I have to switch to a weekly chart to find anything comparable.  And when was that?  The week of 5/17 last year when it hit a high of 48.20, during the Greek Crisis v. 1.0.  The only other time in history the VIX has been higher than this was during the fall of 2008 during the Lehman Bros. meltdown.

So anyway, today's gain was on a hanging man that took it right to its upper Bollinger band.  As I've noted here often, the VIX never spends much time higher than its upper BB  Being now also near another resistance point, I'd have to say the VIX is looking toppy here so I'm giving it +1 bulls.

VIX futures: Remain in their upward regression trend channel on a gap up green candle taking them to new highs.  However, they're now near the top of this RTC.  That's not enough to be a bullish sign, but enough to not give this one to the bears.  So no points here.

Market index futures: ES, NQ, and YM are, amazingly enough, actually in the green for once, though admittedly not by all that much.  ES is up 0.18% at 1:12 AM EDT.  That said, ES gave up not one but two support levels today, at 1121 and 1100.  However, two big days of declines have left the futures looking fairly oversold.

If nothing else, a dead cat bounce looks to be in order right now.  I also note that OBV hooked up today.  The other two times this has happened to this contract, the next day was up.  The stochastic %K line, at 11.21 is quite low and in good position for a bullish crossover soon.  On these items, I give the futures a +1 bulls.

ES daily pivot: is now 1101.67.  We're 11 points below that right now at 1089.  That doesn't make it an immediate factor tomorrow.  However, since tonight we're a lot closer to the pivot than last night (mainly because the pivot came down) it becomes more likely that its gravitational effect will start to be felt, so I'm giving this one to the bulls.  And should we break above this number that would be quite bullish indeed.

Dollar index: Last night I wrote "I'd be highly surprised if the dollar didn't move lower from here" on the basis of a big weekly hanging man.  Well I'm highly surprised.  The dollar took off like a rocket today to close at levels not seen since February.  In fact, its chart is looking exponential here.

And having hit its upper Bollinger band today I'm going to stick to my guns and call for a lower dollar.  But it may not be tomorrow.  Today's long green candle isn't a reversal sign and the indicators are not quite yet at oversold levels.  So I give the dollar one more day to rise before the fall and that's +1 bears.

Oil: Broke under its recent trading range today.  The pattern I spoke of last night did not hold.  Today's red candle and lack of any oversold indications can only lead to another +1 bears here.

Morningstar Market Fair Value Index: Something's screwy with Morningstar again.  The number they're putting up today is 0.79.  The graph says 0.85.  I tend to believe the former number is correct and therefore give +1 bears.

History: Well October certainly started off in accordance with its awful reputation.  With nothing historically looking any better for rest of the first week of the month, it's +1 bears.

Sentiment: The new Ticker Sense Blogger Sentiment Poll  came out today.  The bullish numbers for the last two weeks were 14%, then 21%.  This week, the bullish number dropped back to 14.8%, with a 52% bearish reading.  This is the kind of spread that's associated with contrarian reversals, so strictly on that basis it's +1 bulls.  Also, J-Trader remains bullish for tomorrow.  For the record, I switched my vote to bearish this week on the basis of continuing turmoil in Europe.

     And the winner is...

The bears by a bull-bear ratio of 4:5.  I'll admit I was surprised to see this when I added it up because tonight, like Van Halen who didn't feel tardy, I don't feel bearish.  It just seems to me that the recent sell-off was overdone.  Not that I don't believe there's still more downside to come, but for now, I think we may see a one, possibly two day rally from here.  So I'm going to exercise an executive veto over the voting tonight and cautiously call the market higher on Tuesday.

ES Fantasy Trader

Today we covered last night's short at  1116.00 for a 2.75 point gain.  I was really expecting a turn in the market later in the day which is why I closed out early.  OK, so I left some money on the table, but hey, that always beats losing money, or even the risk of losing money.

Portfolio stats: the account is now $136,750 after 20 trades (14 wins, 6 losses) since inception on 8/18 with $100K.

SLD    10    ES    false    DEC11 Futures     1118.75    USD    GLOBEX    00:43:26
BOT    10    ES    false    DEC11 Futures     1116.00    USD    GLOBEX    12:30:23

Tonight, the ESFT went long at 1088.75.  In the For Real world, I'm still standing aside due to the absurdly high level of the VIX  I have zero appetite for that sort of risk.

Monday going lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Monday lower, high confidence.  Bull-bear ratio is 3:7.
• ES pivot 1135.75.  Current price is far below that.
• Rest of week bias up, on technicals.
• Monthly outlook: bias down, on technicals
• ES Fantasy Trader opened new short position at 1118.75.

Recap

Thank God last Friday finally ended.  And last week too for that matter, with all that psycho-VIX fueled whipsawing going on.  And the month.  And let's face it, the whole quarter was a train wreck.  I vaguely expected the market to be able to go higher on Friday but the case wasn't strong.  I'm now glad I didn't put on any long trades then.  But I say foo on all that and let's move on to the spooky month of October.

The technicals

The Dow: On Friday, the Dow broke through its important 11,000 support (though not by much) to close at 10,913.  Its daily stochastic is just executing a bearish crossover and OBV remains alarmingly high.

The weekly chart on the other hand presented us with an inverted hammer.  However that's not a really high reliability pattern and requires confirmation.  That said, the weekly indicators are actually more oversold than overbought.  I like this chart more than the daily.

Dow monthly

But on yet another hand, the monthly chart (on the right) looks fairly discouraging. Note how we've now (finally) fallen out of the rising regression trend channel that goes back to the March 2009 bottom.  That is a bearish setup.  We also remain firmly entrenched in the descending monthly RTC of May of this year.

The only positive here is the stochastic (second from the bottom) which as you can see is nearing oversold.  But since this is a monthly chart, it could be another month or two before this signals a bottom.  While the monthly RSI has entered oversold territory already, it also did that in March 2008 and remained there for a whole year before we saw a bottom.  And the Dow now has no support all the way down to 10,440.

So all things considered, I'm giving this one to the bears.

The VIX: After some indecision last Thursday, the VIX made a decisive 11% gap up on Friday.  Now at 42.96, it is right back up to its 2011 resistance in the 43-45 area.  With an upper Bollinger band of 43.6,  and a stochastic that has actually executed a very unusual bullish crossover at a high level, the VIX could still go higher tomorrow, although its upside seems limited from here.  So that's +1 bears.

VIX futures: The daily futures gapped up on Friday to their upper Bollinger band too.  However, they're now well past their last resistance level and Friday's green candle gives no indication of a turnaround on Monday, so +1 bears.

Market index futures: ES, NQ, and YM are all down at 12:35 AM.  ES is down 0.58%.  That puts it right at its support level around 1107-1122, a level it has successfully tested four times already since the VIX went crazy in August.  However, its indicators are now looking weaker (meaning less oversold) than at any of those previous four times.  This bodes poorly for a fifth success, so +1 bears.

ES daily pivot: Now 1135.75 and ES is trading considerably under that, at 1119.00.  This puts the pivot out of play.  Being below the pivot like this is bearish in and of itself, so +1 bears

USD, weekly

Dollar index: After a truly amazing monthly run-up in September, the dollar put in the mother of all weekly hammers last week.  Its indicators are all oversold on this chart and the stochastic is about to execute a bearish crossover.  I'd be highly surprised if the dollar didn't move lower from here, so that's +1 bulls.

Oil: Daily chart executed a giant bearish engulfing pattern Friday, but one that took it right to support.  Weekly chart remains in a stairstep decline mode with a big weekly dump followed by about five weeks of gradual partial retracement.  If this pattern holds, then this coming week should see oil prices increase, but only slightly.  With oil still in sync with the market, that would be good for stocks, so +1 bulls.

Morningstar Market Fair Value Index: Morningstar reports the index has dropped to 0.79, so that's bearish for stock.  +1 bears.

History: According to The Stock Traders Alamanc,October is a tricky month.  For a long time it had the reputation as being the worst month of the year, but now September seems to have taken over tha dubious honor.  And in the five years from 1999 to 2003, when September was down big, October was up big.  We're just coming off a positively disastrous September.  Then you've got the first day of the month, which is traditionally good, but the Dow has been down four of the last five years on this day.  So on that basis, for tomorrow at least, it's another +1 bears.

Sentiment: After a rough August, J-Trader's market model (see sidebar) did quite well in September, down less than a percent.  He's calling for a buy on Monday, so I'll give +1 bulls for that.

     And the winner is...

The bears with a bull-bear ratio of 3:7.  That said, we are close enough to enough support levels that it will take some really bad news to go significantly lower on Monday.  And if we do go lower, I become more optimistic for Tuesday.    But once again, with the VIX stubbornly remaining up in outer space somewhere, anything's possible.  New rumblings from Greece and now China in the overnight wires though only add to my pessimism for Monday.  Still, not to go against J-Trader, but this Sunday night the Night Owl hoots for a lower Monday.  We'll see.

ES Fantasy Trader

Tonight, the ESFT goes short at  1118.75.