Overextended, Friday lower

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

• Friday lower, high confidence.  Bull-bear ratio is 2:6..
• ES pivot 1269.75.  Breaking below is bearish..
• Next week bias up on technicals and economic news.
• Monthly outlook: bias up on technicals.
• ES Fantasy Trader went short at 1276.25

Recap

Well it seems that just as the market spent most of the summer pricing in a Europe-induced recession, it is now spending October un-pricing it.  Today's spectacular 340 point rocket in the Dow broke a bunch of barriers all at once and positioned us well for further gains going into November, but maybe not tomorrow.  Let's take a Delphic journey to consult the Oracle for clues to Friday's direction.

The technicals

The Dow: Today's close at 12,209 was very important for three reasons: first it blasted right through the 200 day MA at 11,971 in convincing fashion, second, it broke the psychological 12K barrier equally easily, and third it broke the 0.618 Fibonacci retracement of the decline that began on July 22nd.  There is now no resistance until 12,400.

That said, one might reasonably expect a pause after one day gain of such magnitude, especially with a Friday coming up, on which traders might be more inclined to lock in gains before the weekend..  Today also brought us to the upper Bollinger band.  And OBV is now running off the map at 24.4B, a number I've never seen before and far above the point at which previous tops have been put in.  The other indicators are similarly overbought.  While I think we still have room to go higher in November, this chart is looking a bit overextended, so +1 bears.

The VIX: The all-important VIX lost almost 15% today on a big gap-down forming an inverted hammer. that took it clear to its lower Bollinger band and almost to its 200 day MA at 23.55.  The VIX generally tends to bounce right off its lower BB whenever it reaches it and its stochastic is jsut about to execute a bullish crossover.  On that basis it's looking like +1 bears.

VIX futures: Pretty much the same story here as the VIX itself.  These sorts of big gaps cry out to be refilled, so that would also be bad for stocks.  Another +1 bears.

Market index futures: All three are down this evening with ES down nearly half a percent at 1:10 AM EDT.  Today's tall green candle gives me the impression of being overextended.  However, since ES also crossed well over its own 200 day MA at 1262.5 today, that becomes a good support level.  But I think we may revisit that area before the next push upward, so +1 bears.

ES daily pivot: Now 1269.75.  With ES at 1276.50, the pivot is making its magnetic attraction felt.  Since ES has been drifting lower since 8 PM, I'd expect it to hit the pivot around 7 AM Friday.  If we bounce off, that's bullish.  Breaking under, bearish.  However, I can't give any points for that right now.  I'll be sleeping when it happens, so a word to the wise: see where ES is before the market open on Friday.

Dollar index: The dollar took a massive dump today that brought it clear to its lower Bollinger band at 52.7 (remember I'm looking at $USDPX, not $DXY).  What's not clear is if that will mark a stopping point.  While the indicators have entered oversold territory, there's no support until the summer lows around 52.11.  However, such large downward moves in the past tend to be followed by a dead cat bounce the next day, so I'm going to call the dollar a bit higher tomorrow and that's bad for stocks, so +1 bears.

Oil: Went back up today.  The oil chart is confused here as is its relationship with the rest of the market, so I'm going to take a pass on this one tonight.

Copper: Today, copper took a big gap-up pop to its upper Bollinger band and beyond.  I've been kicking myself for forgetting to buy some FCX earlier this week.  But now the indicators are all oversold and the stochastic just made a bearish crossover so tonight it's +1 bears.  Tomorrow might be the day to grab that FCX.

Morningstar Market Fair Value Index: Today the index rose from 0.87 to 0.88, so that's +1 bulls.

History: According to The Stock Traders Almanac,the last two days of this week tend to outperform historically and Friday is easily the strongest day of the week, so +1 bulls.

     And the winner is...

The bears, with a bull-bear ratio of 2:6.  And that's about how I'm feeling too.  I note also that J-Trader is bearish on Friday and I agree.  I think we'll see Friday go lower.

ES Fantasy Trader

Today we took a profit of 14.5 points.  Portfolio stats: the account remains at $154,750 after 29 trades (21wins, 8 losses) since inception on 8/18 with $100K.  .

Portfolio stats: the account is now $151.625 after 29 trades (21 wins, 8 losses) since inception on 8/18 with $100K. 

BOT    10    ES    false    DEC11 Futures     1256.25    USD    GLOBEX    01:40:31    

SLD    10    ES    false    DEC11 Futures     1270.75    USD    GLOBEX    11:57:01     

Tonight we go short at 1276.25.. 
 

Thursday higher on EU news

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

• Thursday higher, high confidence.  Bull-bear ratio is 6:4.
• ES pivot 1232.17.  Current price is far below that.
• Next week bias up on technicals and economic news.
• Monthly outlook: bias up on technicals.
• ES Fantasy Trader went long at 1255.00

Recap

My admittedly wimpy call last night was that today's market would be driven by news out of Europe.  Well the news was encouraging and the Dow rewarded us with another 162 points to the upside.  I also said Sunday night that this was going to be an interesting week.  How interesting?  Read on as we shake the dice for a lucky roll on Thursday.

The technicals

Dow daily

The Dow: Last night I thought technically that the Dow would go lower today.  However, I refrained from calling this because of the expectation that news from Europe would be the deciding factor.  And so it was, giving us another nice gain.  But tonight I want to point out what I see as a descending triangle (blue lines).  This is a bearish pattern.  And with indicators still quite oversold, that's enough for me to give this one to the bears, +1.

The VIX: I did pretty well with the VIX last night.  Even though the VIX had risen, I called it lower today based on the unusual downside gap three methods pattern and sure enough the VIX dropped 7.3% today to give us a tall inverted hammer.  This is a low reliability reversal candle and requires confirmation.   Since the VIX is not yet at its support around 29-28, it still has at least some more room to run lower.  Its stochastic in particular is not yet giving a bullish reversal sign, so that's +1 bulls.

VIX futures: Again, pretty much the same chart as the VIX itself.  Absent an actual reversal pattern, I'm hesitant to call a bottom here, so it's another +1 bulls.

Market index futures: Of course, all the rest of tonight's technical analysis is pretty much academic, because news just came out that the EU cut a deal for a Greek haircut to the tune of 50%.  Obviously the market likes this hairstyle because all three futures are up about 1 1/2% at 1:30 AM EDT.  ES in particular is up 1.58%.  Tonight's ES action also broke out over the 1252 resistance level.  The stage is now set for an assault on the 200 day MA at 1262.  The indicators are confused but the mood is not, so it's clearly +1 bulls here.

ES daily pivot: Down just a bit to 1232.17.  The late European news effectively puts the pivot out of play for Thursday.  This action is quite positive, so it's another +1 bulls.

Dollar index: The direction of the dollar was unclear last night.  Today's doji combined with oversold indicators and a stochastic making a bullish crossover lead me to believe the dollar's moving higher Thursday.  That would be bad for stocks, so +1 bears.

Oil: Oil slipped today as I predicted last night.  It was unable to break resistance at 93.46.  Significantly though, while oil fell, the market was up on Wednesday.  We may be seeing a change from a positive to inverse correlation between the two.  I still think oil will go lower again Thursday.  If the current inverse correlation holds, that would be +1 bulls.

Copper:Last night I thought copper was too confusing to make a call on.  Apparently the market agreed because today copper simply put in a doji star.  However, having done so right at the top of its recent trading range and with indicators nearly overbought levels I'm more inclined to say copper's going lower on Thursday, so that's +1 bears.

Morningstar Market Fair Value Index: Today the index dropped right back down from 0.91 to 0.87 again.  That's bad, so +1 bears.

History: According to The Stock Traders Almanac,the last two days of this week tend to outperform historically, so +1 bulls.

     And the winner is...

The bulls with a bull-bear ratio of 6:4.  However, whereas the other night I was more pessimistic than the ratio suggested, I think tonight the technicals are too conservative.  I believe that the market will be celebrating the Greek barbers on Thursday and I'm calling the close higher.

ES Fantasy Trader

Today we did not trade.  Portfolio stats: the account remains at $147,500 after 28 trades (20 wins, 8 losses) since inception on 8/18 with $100K.  Tonight we go long at 1255.00.
 

Wednesday to be EU news driven.

 Analysis 100% Made in America

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

• Wednesday uncertain, news-driven.  Bull-bear ratio is 5:3
• ES pivot 1233.75.  Breaking above would be bullish.
• Rest of week bias uncertain, rebound possible by Friday.
• Monthly outlook: bias lower on technicals.
• ES Fantasy Trader standing aside

Recap

As I expected last night, the Dow was flummoxed Tuesday by the double barrier of its upper Bollinger band and the 200 day MA which left it nowhere to go but down.

The technicals

The Dow: Today's close at 11,706 still leaves us a bit above first support at  11,675.  The 207 point drop gave us a medium reliability bearish two crows pattern.  With indicators that have now peaked at overbought levels and turned downward, I'm afraid I see no sign of higher here so that's +1 bears.

The VIX: Today the all-important VIX rose a solid 10% to close back above 30 at 32.22 forming a pattern you don't see very often, the downside gap three methods.  That is a bearish continuation pattern of medium reliability.  This suggests that despite today's advance, the VIX still has lower to go.  Of the three active VIX indicators, RSI and momentum are rising (bullish) but the stochastic, which is very reliably is still descending (bearish).  The preponderance of evidence on this chart suggests a lower VIX tomorrow so that's +1 bulls.

VIX futures: This chart looks very much like the VIX itself with the added advantage of having OBV available.  And that is now at levels from which we've gone lower the next day.  Lower futures -> lower VIX -> higher stocks, so +1 bulls.

Market index futures: All three are higher this evening by better than a third of a percent with ES up 0.41% at 1:30 AM EDT.  Today's big drop in ES formed a difficult candle.  Not quite dark cloud cover, not quite bearish engulfing, I'm not quite sure what to make of it.  I do know we saw the same pattern on Oct. 14-17 and the next day was up.  The indicators are kind of all over the place.  OBV is now in a position looking up for tomorrow but the stochastic is tied up like a ball of spaghetti - you don't see that very often.

Trendwise, Monday's close was right at some good near-term support, and the overnight is respecting that for now anyway.  It isn't completely clear, but I'm going to give this +1 bulls anyway.

ES daily pivot: Is now 1233.75.  We're just three points below this level now but have yet to mount an attack on it.  We'll need to see ES break above this sometime before noon Wednesday to get a higher close.  But since we've been drifting higher since 7 PM, we're at least moving in the right direction and although it's still a bit early I'm going to give this one +1 bulls too.  As usual on uncertain days, watch the pivot for clues.

Dollar index: The buck made an inverted hammer that was unable to move below yesterday's close.  That said, there isn't any particular support here, we're not at the lower Bollinger band yet, and the indicators, while nearing oversold levels aren't there yet.  With this sort of mix, I'm reluctant to call a direction for Wednesday (though I think we'll be going higher by Friday), so no points.

Oil: Oil put in an evening star today right to its upper Bollinger band on heavy volume.   Its oversold indicators suggest lower tomorrow and that would confirm the bearish candlestick pattern.  It might be a day too soon, but I'm still giving a vote for lower oil Wednesday here.  With oil still in sync with the markets, that's +1 bears.

Copper: Copper fell today but only enough to make day two of a three inside down pattern.  But that definitely requires confirmation on Wednesday.  Meantime, copper is in no-man's land, at neither support nor resistance, not close to any Bollinger band, and not in any regression trend channel.  I'm getting no guidance from this tonight so no points.

Morningstar Market Fair Value Index: Today the index jumped from 0.87 to 0.91.  Not only is this bullish in and of itself, but it marks the first time since 8/31 that we've crossed back up over 0.90.  And to the extent that TA can be applied to this graph, I'm seeing an inverse head and shoulders here.  So with all these positive signs, it's +1 bulls.

History:  According to The Stock Traders Almanac,the first three days of the last week of October all underperform historically, so +1 bears. I'd really like to make it 1/2 though, because Wednesday is the least bad of these three days.

     And the winner is...

The bulls by a 5:3 bull-bear ratio.  But that's not exactly a ringing endorsement.  However, J-Trader has covered his shorts but interestingly isn't going long either, suggesting a similar view to what I'm seeing.  Meanwhile Quantifiable Edges is bearish.  And one more key opinion from alert reader Daniel, who today demonstrated a keen insight when he observed:

"But I also wish to call your attention to the many and various “breadth thrust” signals being generated by this upmove in the US equity market. When you report “quite an unusual pattern, stochastics executing a bullish crossover from a high level”, that’s yet another kind of big move alert signal. Similarly with other measures of extreme buying pressure, where the indicators have recently entered overbought zones, then came out of them briefly, and now have moved right back in.

There are many specific definitions of a “breadth thrust” signal, but the concept is universal to all of them. Strong persistent widespread buying, without much letup."

So overall tonight I find myself in a quandary.  The technicals seem to be suggesting at least the possibility of a reversal to the upside on Wednesday but they're not very convincing.  I think what's really going on is anticipation of the upcoming EU summit meeting.  I believe that, once again, Wednesday's market action will hinge entirely on what comes out of Europe, so all the technicals are for nought.

This one really could go either way.  The Night Owl's usual perch is simply not long enough to go that far out on a limb, so we're just going to have to wait and see what happens Wednesday.  Tonight, I'm simply standing aside.  As Peter Sellers said in Being There, "I like to watch".

ES Fantasy Trader

Today we took a profit of 8.75 points.  Portfolio stats: the account is now $147,500 after 28 trades (20 wins, 8 losses) since inception on 8/18 with $100K.  

 

SLD    10    ES    false    DEC11 Futures     1243.00    USD    GLOBEX    01:38:26
BOT    10    ES    false    DEC11 Futures     1234.25    USD    GLOBEX    11:31:57


Tonight we're standing aside - no trade.

 

Tuesday likely lower

The Night Owl is now read on four continents.

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

• Tuesday lower, low confidence.  Bull-bear ratio is 3:3.
• ES pivot 1242.08.  Holding above is bullish..
• Rest of week bias uncertain, sideways to lower likely.
• Monthly outlook: bias up on technicals.
• ES Fantasy Trader went short at 1243.00.

Recap

I love it when a plan comes together and last night's worked out quite well indeed today with the Dow producing a solid 105 point gain.  Can we keep this rally running?  Let's tilt the Ouija board and find out what Tuesday might hold in store.

The technicals

The Dow: Today's close at 11,914 took us just about clear up to both the upper Bollinger band (11,966) and the 200 day MA (11,967).  Theoretically at least, both of these can be resistance.  The Dow has crossed up over its 200 day MA six times since the start of 2010.  Only in one of those cases was it able to accomplish that in one day.  The others took anywhere from 2 to 8 days to break out.

Also, all of the Dow's indicators are now at quite overbought levels.  RSI and momentum have already peaked, but stochastic is actually executing a bullish crossover from a high level, quite an unusual pattern.  Still with just 50 points of available "free" upside remaining, I'd say the Dow is about due to top out in the next day or two, so I'm giving it +1 bears.

The VIX: Dropped another 6.5% today, as I expected.  However, even today's close at 29.25 neither brings us to support (at 28) nor puts the indicators in oversold territory.  This VIX may now be closer to a bottom than a top, but I don't see a reversal sign yet here so it has to be +1 bulls.

VIX futures: This chart is looking pretty much like the VIX itself.  They are now close to, but not quite at support.So while not exactly bearish, they definitely don't look encouraging.  Therefore, no points here tonight.

Market index futures: Unlike the past few nights, tonight all three are in the red.  ES is now down 0.3% at 1:30 AM EDT.  Although ES is close to, but not quite at its own upper Bollinger band and 200 day MA, all of its indicators are now overbought, and four of them (RSI, momentum, money flow and OBV) have peaked and turned down, a bad sign.  I'm not feeling the love from this chart so it's +1 bears.

ES daily pivot: Now 1242.08.  With ES now at 1243.75, we're just barely holding above the pivot.  That makes it tough.  Remaining above or bouncing off is bullish, falling through is bearish.  It's really still too early to call, so no points here.  Just keep a very close eye on this number before the open on Tuesday.

Dollar index: After piercing its 200 day MA yesterday, the dollar did indeed continue lower today but even this drop did not bring it into oversold territory.  We're not even near the next support level, so it stands a good chance to continue lower Tuesday and that's +1 bulls.

Oil: Oil gushed today right up to its upper Bollinger band and resistance from last month.  It's indicators are now all overbought but without an actual reversal sign, it's too early to call a top.  It might come down tomorrow, but I don't see it just yet.  Accordingly, no points for this chart.

Copper: The abandoned baby of which I spoke last night delivered today in a big way with copper gapping up above its previous October resistance and nearly to its upper Bollinger band.  Even at that, all the indicators are still just coming off oversold.  With no further resistance in sight until 388, it's +1 bulls here.

Morningstar Market Fair Value Index: Morningstar did not update this today, so no points.

History:  According to The Stock Traders Almanac,the first three days of the last week of October all underperform historically, so +1 bears.

Sentiment: Once again it's Monday, so the new Ticker Sense Blogger Sentiment Poll  came out today.  Last week the bullish number dropped  just a bit to 55% and the bears rose from 11% to 23%.  This week the bulls dropped to 36% while the bears rose again to 39% putting them back into the majority but just barely (nyuk nyuk).  With such a close score there's nothing to base an opinion on, either with the crowd or contrarain, so no points.

For the record, I voted bullish again for the third week in a row, still on the basis of my reading of the monthly Dow chart and the upcoming bullish fourth quarter seasonality.
 
     And the winner is...

No one.  It's a tie with a bull-bear ratio of 3:3. My overall impression tonight is more pessimistic than that though, so the Night Owl is moving way out on the limb and calling Tuesday lower.

ES Fantasy Trader

Today we took a profit of 9.5 points.  Portfolio stats: the account is now $143,125 after 27 trades (19 wins, 8 losses) since inception on 8/18 with $100K.  
 

BOT    10    ES    false    DEC11 Futures     1238.75    USD    GLOBEX    OCT 24 01:19:52
SLD    10    ES    false    DEC11 Futures     1248.25    USD    GLOBEX    OCT 24 12:16:25
Tonight we go short at 1243.00.

Monday higher

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

• Monday higher, high confidence.  Bull-bear ratio is 8:1.
• ES pivot 1226.33.  Holding above is bullish.
• Rest of week bias higher, top possible by Friday.
• Monthly outlook: bias up on technicals.
• ES Fantasy Trader went long at 1238.75.

Recap

Last week's dramatic symmetrical triangle that resolved to the upside on Friday triggered a number of important changes in a lot of charts, as we'll detail below.  This should be an interesting week ahead.

The technicals

Starting this week, thanks to an excellent suggestion from a valued reader who is way smarter than me, we are going to add copper to the daily mix I use to computer the bull-bear ratio.  Thanks, and a tip of the Hatlo hat to Daniel.  For the record, I'll be watching $ISC, the ISC Global Copper Index.

Dow weekly

The Dow: Take another look at that symmetrical triangle I showed in my last post here.  It is truly a thing of beauty.  This 267 point pop on Friday not only neatly resolved the triangle but took us (finally) up over resistance at 11,500 (blue line) going all the way back to the start of August.

And note on this weekly chart how it's looking like a double bottom now.  You can see how both legs of the "W" found support right at the 200 week moving average (dashed orange line).  The inability of the bears to force the Dow under this is bullish in and of itself, so +1 bulls.

The VIX: On Friday the VIX gapped down big time to close down 10%.  That also caused its stochastic to make a bearish crossover.  That's a highly reliable indicator.  The VIX does have some support at 30.50, but that still leaves a bit lower to go even if that holds, so +1 bulls.

VIX futures: A big gap down on Friday took the futures right to the lower edge of their recent rising regression trend channel for a bearish setup.  Nothing here suggests they might go higher Monday, so +1 bulls.

Market index futures: All three are up  at 1:20 AM, with ES rising 0.24%.  Friday's gain took ES above its October resistance.  ES has no further resistance until 1260, which is right where its upper Bollinger band and 200 day MA are currently located, so there's still room to run.  The fact that we're seeing follow-through in the overnight even in the face of mixed and confusing weekend news from Europe is bullish, so I'm inclined to give this one +1 bulls.

ES daily pivot: Even though the pivot jumped tonight to1226.33 we remain comfortably above it.  Unless there's some sort of awful news early Monday morning, I don't think the pivot should be a factor, although we always want to keep an eye on it.  Anyway, this configuration merits +1 bulls.

Dollar index: In another significant chart, the dollar on Friday put in a big red candle that not only broke its recent support but also sliced through its 200 day MA.  This action short-circuited the rise of its indicators and the stochastic is in fact now about to make a bearish crossover.  With still a bit to go to reach its lower Bollinger band, the dollar could definitely still go lower Monday and that's +1 bulls.

Oil: Oil is right in the middle of its recent trading range but its indicators suggest it could go higher Monday and it is indeed advancing at least a bit in the overnight, so +1 bulls.

Copper $ISC, daily

Copper:  Thursday copper put in a doji at the bottom of a descending regression trend channel from 10/14.  Friday it gapped up on a decent green candle and completed a classical three candle abandoned baby pattern.  That's high reliability bullish as is the fact that it closed outside the RTC.

Also its stochastic is just about to execute a bullish crossover (see bottom row, blue line cutting up over red line).  Copper therefore looks set yo go higher Monday and given its correlation with the market, that's +1 bulls.

Morningstar Market Fair Value Index: No update on a Sunday night, so no points.

History: According to The Stock Traders Almanac,the first three days of the last week of October all underperform historically, so +1 bears.

     And the winner is...

The bulls with a bull-bear shut-out of  8:1.  With J-Trader holding onto his long signal and my mentor Daniel offering subtle hints of further upside, this is not a night I'm going to override the B-B ratio, so I will call for a higher market close on Monday.

ES Fantasy Trader

On Friday we took a profit of 17.25 points. Portfolio stats: the account  now stands at $138,375. after 26 trades (18 wins, 8 losses) since inception on 8/18 with $100K.

BOT    10    ES    false    DEC11 Futures     1214.00    USD    GLOBEX    OCT 21 02:16:11 
SLD    10    ES    false    DEC11 Futures     1231.25    USD    GLOBEX    OCT 21 11:26:16

Tonight we again go long at 1238.75.