Friday due for a bounce

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

• Friday higher, low confidence. 
• ES pivot 1221.0.  Breaking over is bullish.
• Next week bias uncertain, depends entirely on Europe.
• Monthly outlook: bias up on technicals and seasonality.
• ES Fantasy Trader remains long from last week.

 Recap

Well things were looking good for a while there this morning until those pesky Europeans put the kabosh on the market, sigh, once again.  In true tag-team fashion, the Greeks handed off to the Italians who passed it on to Spain this time.  Meanwhile, our markets sink while they play musical leaders.  Where is R. Lee Ermey when you need him?  I want to send him over there to shout "What is your major malfunction?!"

In the meantime, we managed to snatch defeat from the jaws of victory with yet another loss, this time 135 Dow points.  Let's now run down the few remaining technicals that still seem to make any sense at all to come up with a direction for Friday.

The technicals

The Dow: Today's drop left us just under support at 11,780.  It also left the indicators in a considerably more oversold condition than they were the last two rallies we had this month.  This of course does not mean that we can't still go lower, but it would appear we're closer to a bottom than a top right now.  Today's drop also took us very near the lower BB.

The VIX: In a comment on a recent post, Daniel commented on the power of the Bollinger band.  Well today the VIX shot up, hitting a high of 36.46.  Today's upper BB?  36.54.  Once that level was hit, the VIX turned around and finished with just a 3% gain on the day at 34.51.  Once again I will point out that most often when the VIX touches its upper BB, it goes lower the next day.

There's no reason to think this time will be different, particularly since today's candle was an inverted hammer.  Although my call for a lower VIX today last night was a bit premature, the combination of a hanging man followed by an inverted hammer is a much better reversal indicator than either one alone.  We saw this at the end of June 2010 and the next day gapped down.

Market index futures: All three are running in the red tonight at 1:05 AM EST though not hugely, with ES down 0.14%.  However, there are three factors in play tonight that weren't there last night.  First, the RSI has now reached oversold levels and appears to have bottomed.  The last three times we were in a similar position this year, ES rallied hard the next day.  Second, while we broke the 1222 support level today, the next level down at 1212, held  Third, today's low took us to the lower BB and while we're down from the day's close right now, we have moved off the lower BB.  That is also positive.

     And the winner is...

At the risk of sounding like a broken record, I'm going to call for a higher close Friday.  We're now below levels from which previous rallies have happened after big drops.  It just feels like we're due for one.  Note also that Friday is options expiration and that the Dow is up 6 of the last 8 on this day.  In 2008, in the depths of the Great Recession the Dow gained 494 points on this day according to The Stock Traders Almanac.

ES Fantasy Trader

My decision not to let this one go is proving costly in the short run but I'm going to hang in there.  Sometimes you just have to take the heat.  Portfolio stats: the account still remains $173,500 after 35 trades (26 wins, 9 losses) since inception on 8/18 with $100K.  

 

Futures point to higher Thursday

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

• Thursday higher, low confidence. 
• ES pivot 1240.08.  Breaking over is bullish.
• Friday bias up, depends entirely on Europe.
• Monthly outlook: bias up on technicals and seasonality.
• ES Fantasy Trader remains long from last Thursday.

Recap

Well we seem to be back on track, for now anyway.  My idea of filtering out some of the noise seems to have helped and as I expected, the Dow did close lower today by 191 points.  So I'm going to continue along these lines tonight, looking more at the forest than the trees to try and figure out which way this market may be hiking.

The technicals

The Dow: Today's close at 11,906 was right at a support level after a very odd session featuring two big cliffs separated by a gentle upslope - all related to Europe i one way or another.  There remains a big symmetrical triangle forming, going back to October 28th.  I'm still expecting a resolution to the upside within a few days.

The VIX: The VIX popped out of its own triangle, but it was to the upside.  This does happen about 25% of the time.  The "exit in the same direction as entry" rule isn't perfect.  However, today's 7.3% pop came in the form of a hanging man which provides at least some expectation of going lower tomorrow which would be good for stocks.

Market index futures: All three are in the green tonight at 2 AM EST by nearly half a percent.  ES has been rising since about 8 PM this evening and looks to be getting primed for a run at the new pivot.  Note also that today's low stopped short of recent support around 1225.  Catching some traction from 1230 is a good sign.  The indicators are also now approaching oversold levels, with the exception of OBV which is running quite high.  Overall though, being as we are now at the bottom of the recent trading range and near support, I'd say ES has a better chance of advancing tomorrow.

     And the winner is...

The bulls.  I'm starting to see various charts moving enough out of the dangerous middle ground to areas from which reversals become more likely.  I can't say this is the start of any trend, but I'm feeling better about our chances for tomorrow so I'm going to call Thursday higher.

ES Fantasy Trader

Gosh, this is the trade that wouldn't die.  We still continue to hold the long position from last week.. Portfolio stats: the account still remains $173,500 after 35 trades (26 wins, 9 losses) since inception on 8/18 with $100K.  
 

Wednesday looking lower

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

• Wednesday lower, low confidence. 
• ES pivot 1250.08.  Holding below is bearish.
• Rest of week bias uncertain, depends entirely on Europe.
• Monthly outlook: bias up on technicals and seasonality.
• ES Fantasy Trader remains long from last Thursday.

Recap

Europe explained, by M.C. Escher

In a great comment to last night's post, reader Daniel corroborates my feelings that TA is failing us lately.  He also notes that the Italian and Greek situation is very complex, which is about all I've been able to figure out myself.  As far as I'm concerned, it's beyond merely complex; it's positively baffling and incomprehensible.

So tonight I'm bringing back a metaphor I first used on September 14th, also about this very topic.  Since then nothing much seems to have changed.  The players are pretty much all still walking upside down sideways up the down staircase.  Just what exactly is going on over there in Europe anyway?

The technicals

Dow daily

The Dow: Last night was the first time in a long time I just threw up my hands and couldn't make a call.  Turns out not making a call was actually a pretty good call as the Dow put in an extraordinary long symmetrical doji that ended up a mere 17 points after a whole day of bobbing and weaving.  Things don't get any more indecisive than this.

Just look at it: the upper bound was limited by the exact same resistance that stopped us four of the last five sessions (blue line) and the lower bound was just above the 200 day MA.

The other interesting point here is that you can see a developing triangle here too. In his comment, Daniel opines that another move up is in the cards and I tend to agree.  The only question is when.

VIX weekly

The VIX: As an example of how screwy this market is, today the major averages were up and the VIX was also up.  That's quite unusual.  And since the daily charts are such a tough read, I'm once again backing out to the weekly chart.

And look at this: yet another symmetrical triangle on the weekly chart.  These things seem to be popping up everywhere lately.  And since this one was entered from above, one would expect the resolution to be lower, and that would be quite bullish for stocks.

Japanese candlesticks, Dow 2011 style

Due to the recent technical uncertainty, tonight I'm going to take a pass on the rest of the Usual Suspects.  At this point I think we're just dabbling in noise and they're confusing the issue more than they are clarifying it.  The only real guidance I'm seeing tonight is from the futures and they're all headed south.


     And the winner is...

Well we'll still nominate a winner for Wednesday.  Even without computing the bull-bear ratio, the overall impression I'm getting is that technically we're due for a lower close Wednesday.  But I'm also expecting some upward movement pretty soon, maybe by the end of this week.  I guess we'll just have to see if the new leader of Italy can deliver the full Monti.

ES Fantasy Trader

We still continue to hold the long position from last week.. Portfolio stats: the account still remains $173,500 after 35 trades (26 wins, 9 losses) since inception on 8/18 with $100K.  
 

Tuesday too tough to call, watch EU news

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

• Tuesday uncertain, no confidence.  Bull-bear ratio is 4:4.
• ES pivot 1255.58.  Holding below is bearish.
• Rest of week bias uncertain, depends entirely on Europe.
• Monthly outlook: bias up on technicals and seasonality.
• ES Fantasy Trader remains long from last Thursday.

Recap

Once again, the 12,180 barrier proved too tough a nut for the Dow to crack today, ending with a 75 point loss.  My call last night was indeed derailed by Italian bond yields, or maybe it was Spain - at this point it doesn't really matter much.  I can only point out that I did mention Europe would be the deciding factor, as it's been for quite some time now.  We'll run down the technicals again tonight, though I'm afraid it's getting to be little more than a, ahem, technical exercise.

The technicals

The Dow: Today's 75 point drop made a pretty non-descript candle, not quite hanging man, not quite dark cloud cover.  I'm not really sure what to make of this.  My instinct though is that this could easily get pulled either way depending on, that's right, Europe.  Sorry to be a broken record here but that's just the reality of it.  Accordingly, I can't really award any points here though my personal bias is down on this chart.

The VIX: For the second day in a row, the VIX moved in gap fashion, this time gaining 3.6% to form a tall inverted hammer.  While this pattern isn't the greatest reversal indicator, I note that the stochastic made a bearish crossover today and that is a good indicator.  The whole configuration of this chart really reflects the mood of the market, jumping about every which way every time some news flash or another comes out.  Technically, I'd say the VIX has a shot at going lower from here on Tuesday but being as we're still stuck in the Twilight Zone between the BB's, I'm not real confident about it.  I will though give it +1 bulls anyway.

VIX futures: A similar story to the VIX itself here.  I do see though that often when the futures put in an inverted hammer, the next day is lower.  On that basis, I'll give this one +1 bulls.

Market index futures: All three are in the red at 1:25 AM EST with ES down 0.28%.  Today's action formed a classical dark cloud cover that failed to break over the 200 day MA.  That's not a good sign, so I'm afraid this chart is +1 bears.

ES daily pivot: Actually rose to 1255.58 tonight.  After bumping into the old pivot at 1253.33 at 7:30 this evening, ES has just been drifting around vaguely lower.  It's looking like it's rather lacking in conviction.  As long as ES is unable to mount an effective run on the pivot, that's going to be bearish for Tuesday, so +1 bears as of now.

Dollar index: The dollar continues its herky-jerky ways, rising today almost as much as it fell on Friday, all  for no apparent technical reason.  I said it last night and I'll say it again - I'm not touching this one.  No points for you.

Oil: Last night I wrote "I can only assume oil will go higher again on Monday." and so it did.  Only this time it was not good for stocks.  Oil went up, the market went down.  We may be reaching the price level where rising oil is bad for stocks and it goes into a negative correlation with the market.  In any case, the same factors are in play tonight, so I'm going to look for another rise tomorrow which if my conjecture is correct would now be bad for stocks, so +1 bears.

Copper: Cu continued narrowing its range today, going along with my theory of a symmetrical triangle.  If this triangle is going to pop, it's going to happen soon.  My guess is by Wednesday.  On that basis, it's +1 bulls.

Morningstar Market Fair Value Index: On Friday the index rose from 0.88 to 0.89, so +1 bulls.

History: According to The Stock Traders Almanac,Tuesday has a negative bias, so +1 bears.

     And the winner is...

A tie - with a bull-bear ratio of 4:4.  And that really sums up my feelings about the market right now.  I do note that J-Trader is calling for a strong buy for Tuesday - I'm just not seeing it.  It isn't often that I don't make a market call for the next day but this is going to be one of those times.  This one is just too tough for me.

My best advice is to watch the pivots.  If you like the Dow, that one will be a bit under 12,075.  The SPX somewhere around 1252.  If the market can break above these numbers, we have a shot at a higher close.  If we bounce off, we're closing lower.  And as usual, did I mention that news from Europe is controlling everything right now?

ES Fantasy Trader

We still continue to hold the long position from last week.. Portfolio stats: the account still remains $173,500 after 35 trades (26 wins, 9 losses) since inception on 8/18 with $100K.  

Calling Monday cautiously higher

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

• Monday higher, medium confidence.  Bull-bear ratio is 5:0.
• ES pivot 1253.33.  Remaining above is bullish..
• Rest of week bias uncertain, depends entirely on Europe.
• Monthly outlook: bias up on technicals and seasonality.
• ES Fantasy Trader remains long from last Thursday.

Recap

Well I finally got one right last Friday, although I can't claim too much credit - with this crazy market it's pretty much the luck of the draw.  Today we got a well-written thoughtful comment from alert reader Daniel (see the comments to last Friday's post below) in which he says "Within that range, brave prognosticators such as yourself have tried to discern a pattern from day to day or in short swing timeframes, in a Market where the day-to-day changes could have been sent to StockCharts by a random-number generator."

I don't know if it's bravery or lunacy that brings me to wade into this minefield every day, but all I can do is analyze the charts.  But Daniel is right - with a market that's hanging on every bit of news, every rumor of a rumor, and every hint of a rumor of news out of Europe, doing TA is pretty much a crap shoot.  As long as the news wires remain quiet, we usually do pretty well.  Keep that in mind as you read along this evening.  (And do read Daniel's comment - his analysis is excellent).

The technicals

Dow monthly

The Dow: On Friday the Dow shot up to its resistance point around 12,100, closing near its high.  I can't really fault it for not breaking this level given that it had already advanced 260 points.  But it does leave us in a quandary for Monday.  Two green candles are bullish and we handily broke both the 12K resistance and the 200 day MA at 11,976.  Interestingly, the Dow has visited the 200 MA in 9 of the last 11 sessions.  Each time this happens, it loses some of its character as a barrier, either up or down.  Just mentioning...

But the chart I really want to look at tonight is the Dow monthly here.  This is the basis on which I've been voting bullish in the Ticker Sense weekly sentiment polls lately (and for the record, I did so again in tomorrow's poll).  Note the five consecutive months of declines beginning in May and ending in September.  That coincided with a bottom in the indicators  October broke the decline in a big way and took us just to the right edge of the declining regression trend channel.  The action this month so far at least is a bullish setup.  I know its dangerous making predictions on the basis of a half-baked candle, but that's all we've got right now.

The other big thing about the candles here is that October formed a classic bullish engulfing pattern.  You don't often see this on a monthly chart.  I had to go back to November/December of 1991 to find something similar and that was followed by five months of further gains.

So bottom line, I'm going out on a limb to give this one +1 bulls for Monday because of the resistance on the daily chart, but with the longer term support behind us as well as the end of year seasonality, I'm a bit more confident.  If my system had it, I'd give this one maybe 2/3 bulls.

The VIX: Ah the VIX, the King of indicators.  All hail the VIX!  After touching its upper BB last week, it retreated and gapped down 8.4% on Friday to form a small doji.  That alone raises the possibility of a reversal on Monday.  And if you take out Thursday's odd spiky candle, it's looking like a bullish doji star.  Also, Friday closed right at 30, which has proven to be support recently.

But the VIX also ended right in the center of the Twilight Zone, that area in the middle of the Bollinger bands.  And with the volatility of the VIX itself remaining abnormally high since August, it is premature to call a higher VIX on Monday on this basis.  The best I can say is that we have a bullish reversal sign that requires confirmation.  That should come tomorrow.  So I can't give any points yet.

VIX futures: When the VIX lacks clarity, we seek it from the futures.  Unfortunately, this chart looks a lot like the VIX itself.  Even moving out to the weekly chart is of no help since that is simply a great big doji of indecision.  Too hard to call, no points.

Market index futures: I'm a bit encouraged this evening to see all three futures are up, with ES being up 0.4% at 1:45 AM EST.  Seeing some follow-through after Friday's big gain is a good sign.  So is the fact that ES opened today with a gap up over its 200 day MA of 1261.28.  That's our new support.  The indicators mostly continue to rise (RSI being the exception) but I'm wary of them right now - they tend to get distorted when the market has big swings like we saw last week.  Nevertheless, I'm feeling the love here, so +1 bulls.

ES daily pivot: Now 1253.33.  With ES now at 1268.00 we have a fair cushion against the pivot.  This is the sweet spot - not close enough to risk falling through and not far away enough to be overextended.  I'm liking it, so +1 bulls.

Dollar index: The poor dollar is really getting jerked around by the European brouhaha.  Last week it was up big and down big.  Sorry, I want nothing to do with this chart tonight - no points.

Oil: Broke over its 200 day MA on Thursday and did not retreat on Friday.  Oil remains firmly in a rising regression trend channel from 10/4/11.  There is now no resistance until 100.  With its indicators all broken-overbought, I can only assume oil will go higher again on Monday.  Higher oil is still good for stocks (for the time being anyway), so this one is +1 bulls.

Copper, weekly

Copper: After holding support on Thursday with a stubby doji that held support of its previous low, copper executed a nice bullish piercing pattern on Friday.  And speaking of symmetrical triangles as we've been recently, note the nice one forming on copper's weekly chart here.  Since these tend to resolve in the direction of entry about 75% of the time, this would imply that copper could be due for a breakout as early as this week.

This triangle is getting about as coiled as it can get.  It's looking about ready to blow any day now.  And as alert reader Daniel notes, "triangularity of any kind usually resolves in the prior major direction, and given the kaboom of October that still has to be seen as UP. And that UP must be especially respected as we come into year-end Bonus angst time". 

Note also that last week closed just about at the 50% retracement of the big jump three weeks ago and attempts to drive it lower in the past two weeks failed. On this basis, I give copper +1 bulls.

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

History: According to The Stock Traders Almanac,the Dow was down 7 of the last 11 on the Monday before November expiration.  However, they rate the day bullish.  To me, this sort of cancels out, so I'm not giving any points here.

     And the winner is...

The bulls, with a bull-bear ratio of 5:0.  While the shut-out is impressive, the low score strikes a cautionary note.  In fact, the astute J-Trader closed out his long position on Friday but did not go short.  But the Night Owl rarely equivocates, so tonight we move a bit further out on the limb than usual and call for a higher Monday, modulo the usual noise out of Europe.  That's all she wrote (that's enough!)

ES Fantasy Trader

We continue to hold the long position from three nights ago.  My decision to hold once again on Friday was a good one and we have no recovered almost all of the loss (the Italian job) on this trade. Portfolio stats: the account still remains $173,500 after 35 trades (26 wins, 9 losses) since inception on 8/18 with $100K.