Wednesday looking likely lower

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

• Wednesday lower, medium confidence.
• ES pivot 1274.08.  Holding under is bearish.
• Rest of week bias higher historically.
• Monthly outlook: bias up.
• ES Fantasy Trader going short at 1269.25.

Recap

It was certainly pleasant to see the year begin with a 180 point advance in the Dow.  If nothing else, today's action give us something to chew on as we contemplate where we're headed Wednesday.  As we run down the usual list of suspects one thing is clear: after just one day of trading, we're already at a crossroads.

The technicals

The Dow: Today's high of 12,480 took us above the upper BB at 12,435.  That level proved unsustainable and we retreated to close at 12,397.  This suggests that we could see a pullback on Wednesday, though remember that we have some support at 12,300.  And note that the 12,400 level is also a resistance line from last summer.  Since the Dow has lately been loath to climb its upper BB, preferring instead to bounce off, it's questionable if we have the oomph to follow through from here.

Daily VIX

The VIX: Interesting chart in the VIX today - check it out.  Looks like we're getting another symmetrical triangle.  But which way will it resolve?  If you think we entered from below, at the bottom on December 22nd, then it will go higher.  If you take the longer view from earlier in December, it will go lower.

In any case, today's doji of indecision was accompanied by a stochastic (bottom row) that sure looks like it's going to make a bearish crossover, sending the VIX lower.

VIX futures: Meanwhile the futures dropped exactly to their 200 day MA support line, with their own stochastic bearish crossover.  A breakdown here would strongly imply a lower VIX and higher stocks.  We're really teeterng on the edge here.

Market index futures: We now have ES trading again, and at 2:05 AM EST, it's trading down 0.2%, along with NQ and YM.  Of particular concern is that this drop is forming an evening star pattern and that's a good bearish reversal indicator.  ES, like the Dow hit is upper BB today also, and this big gap up looks like it may be wanting filling.

ES daily pivot: The pivot jumped from 1254.58 to 1274.08 while ES began sagging just before 1 AM.  Now being under the new pivot is a negative for the market.

Dollar index: The buck broke recent support with a solid red candle to the downside today and its stochastic executed a bearish crossover.  A weakening dollar is good for stocks.

Oil: Took a big spike up today, mainly on childish posturing from the Iranians.  Iran is clearly attempting to thread the needle here, trying to act just belligerent enough to jack up the price of oil enough to hurt the West (and help their own bottom line) without bringing down a military strike on them, an action they could not answer, contrary to their comical  North Korean-esque bombast.  Since oil is now 100% politically driven, it has no technical importance.  However, if its price continues to rise above $100, that will clearly act as a brake on any advance in the market.

Copper: Dr. Cu took a big gap up today that looked a lot like the action last November 30th, right down to the stochastic bullish crossover from a high level.  And back then, what followed was three small-range consolidation days.  Will history repeat itself?

Morningstar Market Fair Value Index: On Friday, the index remained at 0.87, so no guidance here.

History: According to The Stock Traders Almanac, the Dow is up 13 of the last 18 years on this day, and it's the strongest day of the week.

Sentiment: It's the start of a new week so once again it's time for the TickerSense Blogger Sentiment Poll.  Today we note that bullish sentiment has increased to 46% while bearish sentiment has declined to 21%.  I find it interesting that the bearish sentiment has decreased more than the bullish view has increased.  You could view that as contrarian bullish.

In any case, there are not yet enough bulls to view these numbers as contrarian bearish.  And for the record, I helped the bull case by voting with them this wee, based on my reading of the monthly SPX chart.  We see there that SPX has emerged from its descending RTC and given a bullish trigger with no resistance until 1366.

     And the winner is...

All things considered, I have to say that despite the historical positives for tomorrow and signs that the VIX could go lower, I'm going to call Wednesday lower.  I'm not seeing much technical motivation to drive us higher just at the moment.  And I note that J-Trader is going short and he's been doing quite well for a long time now.

ES Fantasy Trader

Tonight we put on our first trade of 2012 with a short at 1269.25 at 1:57 AM.  Portfolio stats: we begin with $100,000 after 0 trades (0 wins, 0 losses).