Small doji Wednesday, maybe a bit lower

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

• Wednesday lower, low confidence..
• ES pivot 1388.25.  Holding above is bullish..
• Rest of week bias higher technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

Holy moly.  Last night I wrote "we might be set for at least a small gain Tuesday."  That turned out to be the understatement of the year as the Dow jumped 218 points for its biggest gain of the year so far.  The Naz and S&P gained even more percentage-wise.  Nice.  So does this mean profit-taking is on the way or are we on a roll?  Read on...

The technicals

The Dow:Today's tall green candle in one fell swoop took us decisively out of the 12,950-13,000 range that has plagued us all year so far.  Interestingly, it happened on higher than average volume.  And even after today, the indicators are still not overbought, although we did bust right through the upper BB.  That's the one point that might argue against a continuation of this rally on Wednesday.

The VIX:  The VIX today extended its recent waterfall decline to four straight days, this time with a gap down inverted hammer.  Notably, its close of 14.80 was under the lower BB, and so low I had to go to the weekly chart to find the last time we were down here (it was just about a year ago, the week of April 25th, 2011).  It's worth noting that the VIX has multi-year support at these levels going back to 2008.  The last time we were substantially lower than this was in the 2005-2007 rally.

So now we're at an interesting crossroad.  The daily chart suggests a VIX reversal any day now, but the weekly chart now offers no further support until its lower BB all the way down at 11.22.  In view of the fact that the VIX, though gapping down, did put in a green candle today, the first time its managed to do that in five sessions.  But like the other charts so far this year, any reversal warning requires confirmation.  Right now the VIX may want to go higher tomorrow, but I'll believe it when I see it.

Market index futures: At 1:30 AM EDT, we've got a mixed picture, with ES and NQ running a bit lower (ES down just 0.05%) and YM higher by only 0.03%.  Let's call it essentialy flat.  But today's tall green candle decisvely busted the 1375 resistance level that plagued us last month.  It also closed way above its upper BB.  Seeing this and after such a big one day gain, it would not be unreasonable to expect a pause while the market catches its breath and digests its gains.  The small overnight doji being formed certainly seems to support that idea.  Even at that, the indicators are still only close to, but still not yet at overbought levels.

ES daily pivot: Tonight the pivot took a big jump from 1370.42 to 1388.25.  Some basically sideways action in the overnight keeps us above even the new level, though not as much.  Still, 7 points is a respectable distance, and a positive sign.

Dollar index: Today the dollar ut in a gap-up doji that just managed to touch the upper BB at its intraday high.  With overbought indicators, this portends a lower dollar Wednesday which would be good for stocks.

Morningstar Market Fair Value Index: Yesterday the index remained at 0.96.  Given today's big run, I'll expect it to (finally) go higher tomorrow.  That would be a positive sign.


History: According to The Stock Traders Almanac, both Wednesday and Thursday are historically quite bullish.

Sentiment: Once again it's time for the latest TickerSense Blogger Sentiment Poll.  We continue to track the poll to see how well it performs.  Here's the updated cumulative list for this year:

Wk.# Week   % Bullish  % Bearish  NightOwl SPX  Accuracy

  1  1/3        46         21        +     1258   1/1

  2  1/9        56         37        +     1278   2/2

  3  1/17       41         33        +     1289   3/3

  4  1/23       46         32        +     1315   4/4

  5  1/30       48         31        +     1316   5/5

  6  2/6        56         30        +     1345   6/6

  7  2/13       48         31        +     1343   7/7

  8  2/21       44         32        +     1361

  9  2/27       48         24        +     1366

 10  3/5        43         26        +     1370

 11  3/12       46         32        +     1371

Again, 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 2/13 was correct, the S&P now being higher than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 7 for 7.  And of course that means that since I voted with the majority back then, the poll as a whole was also correct that week.  Once again the Ticker Sense bloggers continue to bat 1000.  And once again, I voted bullish this week.  I'm still not seeing any technical reversal indicators on the monthly SPX chart.

Interestingly, both bullish and bearish sentiment increased this week, apparently at the expense of the fence-sitters.  But since bearish sentiment gained more, the bull-bear ratio is actually smaller this week than last.  Hardly the sort of contrarian extreme sentiment reversal indicator one would expect in anticipation of a top.   In fact, for five weeks of the 11 so far this year, there was actually more bullish sentiment than this week.

     And the winner is...

I'm going to say that on Wednesday we're going to get a small range doji that's typical of the day adfter a big gain when the VIX is under 20.  There still seems to be room to run higher on the weekly charts (the Dow's upper BB is at 13,416), but I'd be surprised if we got an immediate push higher.  If nothing else, the fact that today we busted so many Bollinger bands makes me think that we might go at least a little lower Wednesday.

ES Fantasy Trader

Despite Fed-related uncertainty, I'm glad now I decided to go long last night, even though I left the party much too early and left some cash lying on the table.  Nevertheless, we still booked a 1.5 point gain.

Tonight, I'm not seeing a big edge either way, so we're standing aside.

The account is now $114,750 after 21 trades (15 wins, 6 losses) starting from $100,000 on 1/1.

SLD    10    ES    false    MAR12 Futures     1380.25    USD    GLOBEX    11:07:55   

BOT    10    ES    false    MAR12 Futures     1378.75    USD    GLOBEX    01:44:50