Tuesday maybe a bit higher

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

• Tuesday higher, low confidence.
• ES pivot 1306.50.  Holding above is bullish..
• Rest of week bias higher technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes long at 1311.75..

Recap

Last night I figured it looked like we were going lower today and we did close down - all of 7 Dow points.  It was another one of those days we've come to see more of lately, with a dive right out the gate and then the rest of the day gaining it back.  Let's see what Tuesday might hold in store.

The technicals

The Dow: Today's action formed a tall dragonfly doji, and that's sometimes a good reversal indicator.  However, it does require confirmation the next day, particularly in this case where we're still a log way from the lower BB and the indicators are not yet oversold.

The VIX:  I thought the VIX wouldn't go up today but it continued to "climb backwards" putting in a second gap-up red candle that while posting a 4.7% gain on the day, closed down nearly a point from the open.  This is a very very unusual pattern.  I searched back to 2007 and only found one other instance of something similar, and the next day (Feb. 11, 2011) the VIX was lower.

I don't know if this pattern has an official name, but I will call it the "drowning man" pattern: two consecutive gap-up red candles.  The idea is that the drowning man rises up to the surface at first, but the undertow keeps pulling him back down.

Does this mean the VIX will go lower on Tuesday?  I have no idea.  However, I do believe it signals limited upside for the VIX, especially since it it now sitting just below 20.

Market index futures: Tonight all three are positive, with ES up 0.15% at 1:15 AM EST.  ES put in a classical hammer today and the upside in the overnight could be taken as confirmation of that.  The indicators are a bit less encouraging and still not at the sort of oversold levels that would more clearly signal a reversal.  However, the overnight does take us out the edge of the descending RTC and that's at least a bullish setup.

ES daily pivot: Fell tonight from 1312.92 to 1306.50.  That was enough to out ES above the pivot, a positive sign.

Dollar index: Last night I suggested the dollar had higher to go this week and it started doing that today, gaining 0.37%.  It's not clear from this if it will continue, but looking at the euro chart we see a developing symmetrical triangle and those often resolve in the direction they were entered.  That portends higher for the euro soon, meaning lower for the dollar, and that would be positive for stocks.

Morningstar Market Fair Value Index: No update given today.

History: According to The Stock Traders Almanac, Friday is one of the two most bullish days in the month (the other being the first).

Sentiment: It's the start of a new week so once again it's time for the TickerSense Blogger Sentiment Poll.  We continue to track the poll to see how well it performs.  Here's how things stack up so far this year:

Week   % Bullish  % Bearish  NightOwl SPX  Accuracy

1/3         46        21        +     1258   1/1

1/9         56        37        +     1278   2/2

1/17        41        33        +     1289

1/23        46        32        +     1315

1/30        48        31        +     1316

The SPX number is the closing price of the S&P on the Friday before each new poll comes out.  The "NightOwl" column is how I voted.  Since the poll is for 30 days out, after the first four weeks we're able to see how well we did.  This week we see that my bullish call on 1/9 was correct, the S&P now being higher than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 2 for 2.  And of course that means that since I voted with the majority, the poll as a whole was also correct that week.  So far, the "majority is always wrong" theory isn't looking too good.

This week we note that while bearish sentiment remains essentially unchanged for the third week in a row, bullish sentiment continues to increase slightly.  The numbers are still not extreme enough to be contrarian bearish, but we'll see how things develop.  For the record, I voted bullish based on my reading of the monthly SPX chart.

     And the winner is...

There's two ways to play this.  The aggressive view is that we're going higher Tuesday.  The conservative view is that Tuesday is uncertain but if we don't go higher, then we're more likely to move up on Wednesday.  I think I'm going to take the view that the bears' continued inability to knock 'em lower is a positive sign, particularly in view of the fact that we're getting news from Europe that's not so hot, and therefore we have at least a chance of going higher on Tuesday.  And if we don't go higher Tuesday, I'm more confident that we will on Wednesday.  Note also that those are the last and first days of months respectively and those are historically positive days for the market.

ES Fantasy Trader

Portfolio stats: the account remains $99,500 after 6 trades (4 wins, 2 losses)   Tonight we're going long at 1311.75.  I figure if this trade doesn't make money on Tuesday, it more than likely will on Wednesday.