Wednesday uncertain

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

• Wednesday uncertain, weak bias lower..
• ES pivot 1284.17.  Holding over is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader went short at 1282.75.

Quote of the Day

"Even in a good market year it is typical to have a 15% drawdown at some point."

                                                    -  Jeff Miller, "A Dash of Insight" (see blog sidebar)

Recap

Last night my call was simply "Tuesday higher" and that's just what happened with a pleasing 70 point gain in the Dow.  Is there any more upside left here?  Let's spin the wheel and find out.

The technicals

The Dow: Today the symmetrical triangle resolved to the upside demonstrating once again what a great pattern this is.  But today's close at 12,462 also left us in the middle of a resistance band from the middle of last July.  From here we have resistance at 12,500 and then the upper BB at 12,531.

Daily VIX

The VIX: Here's an interesting chart I really want to share with you.  First notice the symmetrical triangle I pointed out last week.and how it finally resolved to the downside on January 4th.  Then recall how I mentioned the dark cloud cover last night.  Worked like a charm.  Today the VIX gapped down 1.8%.

Two important things now: first, today's decline came on a green candle and second, notice how the stochastic is just making a bullish crossover (bottom row).  These both suggest the possibility of a higher VIX on Wednesday which would be bearish for stocks.

Balancing this is the fact that today's close of 20.69 still leaves us a bit shy of the lower BB at 19.4.  When declining, the VIX often (but not always) makes it all the way to the lower BB before reversing.

Market index futures: Unlike last night, tonight all three futures are back in the red with EES down 0.19% at 12:45 AM EST.  But today's big green candle finally broke us out of the narrow trading we'd been stuck in for the last five sessions with the triangle here also resolving higher.  What's concerning me in tonight's chart is that OBV has peaked and is now declining after rising since December 19th.  While the other indicators are pretty much stuck in overbought-broken mode, a peak in OBV is often a good bearish reversal signal.

ES daily pivot: Rose to 1284.17 tonight.  This puts ES just under the new value.  And ES just finished an attempt to break through but was rejected.  The longer we hold under the pivot, the more bearish I feel.

Dollar index: Last night I wrote "Today's decline should be followed by more on Tuesday", and so it was, with the dollar gapping down for a 0.35% decline.  And it may still not be over as the $USDUPX is just now making a bearish crossover on its stochastic.

Copper: Very much contrary to my expectations last night, copper took a big gap up today clear to its upper BB.  That alone increases the chances that it will go lower on Wednesday.

Morningstar Market Fair Value Index: Yesterday the index rose to 0.89.  While a rising index is good for stocks, the 0.89 level represents resistance.  We haven't been above this level since last November 8th suggesting that further short term gains may be harder to come by.

History: According to The Stock Traders Almanac Wednesday is historically on the minus side for all three major averages.

     And the winner is...

Not looking as clear to me as the individual components of the analysis might suggest.  Right now I'm seeing some headwinds building but not a lot of downward pressure yet.  As I wrap this up just after 2 AM, I note that ES has broken above its pivot and is trending higher.  If it doesn't come back down by the open, we may very well see at least some more gains on Wednesday.  Otherwise I'm going to go out on a limb and guess we see another doji day on Wednesday.

ES Fantasy Trader

Today we took a profit of 6.5 points just before lunch.  It was one of those cases where it just looked best not to get too greedy, a decision that paid off later on as the day moved lower.  Portfolio stats: the account remains $103,375 after 3 trades (2 wins, 1 loss).  On Tuesday night we go short at 1282.75 at 8:15 PM.

BOT    10    ES    false    MAR12 Futures     1282.00    USD    GLOBEX    01:10:39

SLD    10    ES    false    MAR12 Futures     1288.50    USD    GLOBEX    11:40:00