Friday, February 24, 2012

Tough call - Friday might go higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Friday higher, low confidence.
  • ES pivot 1359.00.  Holding above is bullish..
  • Next week bias uncertain technically.
  • Monthly outlook: bias up.
  • ES Fantasy Trader standing aside.

Once again the market did not really move the way I expected today, though I did point out that I had some doubts about calling today lower. Instead, the Dow continues to bump up against the 13K line, being unable to cross it so far.  Much has been made recently about the last time we visited this level, back in May of 2008.  But there's one big technical difference.

Back then, the 200 day MA was also right at 13K, providing a sort of double barrier.  The Dow made two attempts to cross 13K in May '08 and then just gave up.  Of course, there were also some major fundamental economic differences back then, but technically, today's chart is in a different place.  First we're considerably above the 200 day MA now and second, instead of taking one quick stab at 13K, we're in a period of consolidation right below it.

I'm also hearing a lot of talk about how a big pullback is imminent, and I'm as guilty as anyone, having painted a gloomy picture just last night.  Now, I'm not so sure.  Read on...
The technicals

The Dow: Our friend the Dow seems to be back in the same mode it was in earlier this month, only now at a slightly higher level - alternating up-down days featuring a variety of reversal candles that don't reverse.  Indeed, we seem to be continuing the stair step advance pattern in place since last December.  Every time we level out for a few days, it gets people thinking the rally is over and we're about to get a pullback - and then the market takes a quick move higher, where the process repeats.

I note too that the stochastic bearish crossover I saw last night unknotted itself today and now is looking more thready and therefore useless as a predictor of anything.

The VIX:  The VIX blew right through its recent support at 17.75 to finish down 7.6% today on a long solid red candle.  It closed on its last support point at 16.80 and is now back in its descending RTC.  The upside move of last week was more of a fake-out than a breakout.  Today's close was the lowest since early last July.  The VIX now has no support until 16.49, the lower BB, and then 15.30.  I see nothing in either the daily VIX or futures to suggest a reversal on Friday, though next week might be a different story.

Market index futures: At 1:35 AM EST, all three futures are up with ES leading the way, gaining 0.17%.  While we did not hit 1369 today, as I figured last night, today's green candle could be taken as both a hammer and a bullish engulfing pattern.  A chart that was looking pretty poor last night isn't looking so bad tonight.  And the lack of negative follow-through in the overnight diminishes the bearish case.

ES daily pivot: Bumped up a bit from 1357.67 to 1359.00 tonight.  After rising all evening, we remain six points above the new number, which is a good sign.

Dollar index: The dollar continues in a somewhat erratic downtrend.  It's now close to support and its lower BB, but not quite there yet.  Although it put in a star today, we could see at least a bit more downside here on Friday.

Morningstar Market Fair Value Index: Yesterday the index extended its streak at 0.96 to four straight days.  The last time we had a streak at this level ended on February 9th at 5 days.  The 10th was down.

Meanwhile, speaking of streaks, the SPX Hi-Low index was stuck on 100 for eight straight days now.  That's quite unusual without a pullback.

History: According to The Stock Traders Almanac, this Friday is historically the weakest day of the week, decidedly bearish.

     And the winner is...

Yet another tough call.  Last night I was feeling pretty negative and it didn't happen today.  This market continues, for the time being at least, to be able to shake off bad technicals.  I still think a pullback is coming but right now it's not looking like it will happen on Friday, especially not with the VIX in decline and now below 17.  So instead, I will call for a slightly higher close on Friday, but once again, I don't have a lot of confidence here - the signals are just not that clear right now.

ES Fantasy Trader

 I said last night that I had a bad feeling about this trade.  That prompted me to close it out right at the open for a one point profit, figuring I'd better get while the getting was good.  I'm glad I did, since the market began rising shortly thereafter.

Tonight I'm simply chickenig out.  While I think we may go a bit higher tomorrow, I'm not confident enough to put on a big ES trade and I'm still not liking the risk/reward ratio at these levels.  Nothing ventured, nothing lost.

The account is now $113,250 after 15 trades (12 wins, 3 losses) starting from $100,000 on 1/1.

BOT    10    ES    false    MAR12 Futures     1353.50    USD    GLOBEX    09:30:38
SLD    10    ES    false    MAR12 Futures     1354.50    USD    GLOBEX    FEB 22 20:57:07   


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