Tuesday, March 13, 2012

Tuesday maybe higher but watch Fed

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday possibly higher, unless torpedoed by Fed.
  • ES pivot 1370.08Holding above is bullish..
  • Rest of week bias mixed technically.
  • Monthly outlook: bias up.
  • ES Fantasy Trader goes long at 1378.75.

Well I was wrong last night - after looking at some mixed messages on the charts, I ended up picking the wrong message.  I thought we were going lower today, and although the Naz did drop 0.16%, the Dow gained 38 points.  Let's see if we can get this straightened out for Tuesday.

The technicals

The Dow: Today the Dow completed its total retracement of its big dump from a week ago.  And its close of 12,960 drops us right back into the congestion zone of 12,950-13,000 in which we spent so much time wandering around the last half of February.  Yesterday's shooting star was a false alarm.  That's why this pattern always requires confirmation.  Today's green candle cancels that and presents not even a potential reversal.  The indicators are also only about halfway up their trip from oversold to overbought.  If anything, the Dow appears to be setting up another assault on 13K.

Daily VIX
The VIX:  Once again, the chart du jour is the daily VIX.  Look at how we've now had a waterfall of three consecutive gap-down dojis here.  Today's blasted right through its ST support and took us exactly to the lower BB (and even lower intraday).  That's a remarkably quick five day trip from upper to lower BB.  And of course that means, as I always say, that the VIX doesn't like to spend more than a day or two hanging out on its BB's.

However, while a higher VIX is possible in the next day or two, a wider look at the weekly chart shows that today's drop broke support going back to January 23rd and we're now close to last year's low at 14.75.  And the weekly lower BB isn't until 12.98.  So although we may be in for a short bounce, there's still plenty of room to run lower in the coming weeks.

And finally, I note that the VIX generally has a kind of manic-depressive character to it.  When it shoots up, it tends to stay high for a while.  And the higher it goes, the harder it becomes for it to come back down.  Same thing in the other direction.  When the VIX is down, it gets depressed and that makes it harder for it to get back up again.  With the recent inability of the VIX to break back over 20 and in fact moving lower, we may be headed for one of these depressive periods.  And that's good for stocks.  At the very least, I don't think we have to worry about four consecutive days of up 400, down 400 like last summer.

Market index futures: What a difference a day makes.  After looking rather poor last night,  ES ended up staying in its rising RTC today.  True, it put in a long dragonfly doji, but we've seen so many of these false alarms this year, it really requires confirmation.  And at 1:50 AM EDT we're not seeing any, with all three futures in the green and ES up a decent 0.44%.  There's not much to dislike in this chart.

ES daily pivot: Tonight the pivot barely ticks up from 1370.08 to 1370.42.  Coupled with an uptrend that began at 1 PM Monday and continues in the overnight, we're now now a good nine points above, which is a positive sign.

Dollar index: After two big  days of gains, the dollar took a rest today, dropping 0.21%.   That might suggest a reversal lower, but we're right in the middle of the Twilight Zone (the region midway between BB's), so anything could happen Tuesday.  This chart is too tough for me.

Morningstar Market Fair Value Index: No update posted on the MS web site today.

History: According to The Stock Traders Almanac, Tuesday is historically fairly bearish and the weakest day of the week.

     And the winner is...

Technically I'd say it looks like we might be set for at least a small gain Tuesday.  Unfortunately, tomorrow is a Fed day, so I think the close will be more influenced by that than the technicals.  I suspect that the Fed will not throw any cold water on the market but one can never really be sure.  So no official call tonight - I don't pretend to know what Uncle Ben might be planning to say.

ES Fantasy Trader

Last night's short just wasn't working so I dumped it today for a small 1.5 point loss.  Despite my caveats above, tonight we're going to take a speculative long at 1378.75, with the intention of exiting before the Fed speaks.

The account is now $114,000 after 20 trades (14 wins, 6 losses) starting from $100,000 on 1/1.

BOT    10    ES    false    MAR12 Futures     1369.00    USD    GLOBEX    11:16:40   
SLD    10    ES    false    MAR12 Futures     1367.50    USD    GLOBEX    01:40:59   


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