Thursday higher if pivot crossed

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

• Thursday higher, medium confidence.
• ES pivot 1396.92.  Breaking over is bullish.
• Next week bias uncertain, technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes long at 1397.00.

Recap

Last night I wrote that I wasn't feeling the love and the Dow responded by barfing up 125 points in a truly ugly session.  The obvious question now, is was this just a one-off like the last big dump we saw on March 6th, or a harbinger of things to come.  The answer, my friend, is blowing in the charts.

The technicals

The Dow: The only good thing about today's big red candle is that it respected the 13K support line.  That, and the fact that it retraced enough to almost make it back into the 13,100-13,250 range we've been stuck in recently.  The bad news is that even losing 125 points today, the indicators are still only about halfway to oversold.  The stochastic in particular is just finishing its bearish crossover, and that's never a good thing.

The VIX:  What I like is that sometimes when the Dow chart has a measure of ambiguity, the VIX often comes to the rescue.  Such is the case tonight.  While the VIX did gap up big time today, gaining 5%, it did it on a red candle.  But most importantly, it poked through the upper BB at 17.18  intraday.  As I've often noted here, the VIX very rarely continues to climb after hitting its upper BB.  In fact it usually goes back down within a day or two at the most.  And the RSI is now at 95, which is more overbought than any time since last July.  This all suggest a a VIX ready to go lower, which would be good for stocks.

Market index futures: Tonight, we've got the futures all trading higher, with ES up 0.25% at 1:56 AM EDT.  And today's big red candle was enough to move this chart to oversold levels, at least on the RSI.  OBV has also hooked up, a good sign of a reversal.  Money flow has also come way down to levels from which reversals have occurred recently.  So while I don't think this chart is ready to take off, it does look like some support has kicked in.

ES daily pivot: Tonight the pivot drops from 1407.50  to 1396.92.  Since ES has been slowly drifting higher since about 10:30 this evening, we are now just touching the new pivot.  Breaking above this and staying there will be crucial to a positive close on Thursday.

Dollar index: The dollar today jumped 0.39% but put in a very toppy looking evening star (well the first 2/3 of one at least).  It was also stymied by resistance at 55.50 (remember, I'm using $USDUPX, not $DXY).  Anyway, this chart looks ready to move lower Thursday, which would be good for stocks.

Transportation: Today the $TRAN put in a hammer coupled with mixed indicators.  The RSI while still overbought, has peaked and turned lower.  OBV is now at its lowest level since the December lows.  But the stochastic continues to rise.  Perhaps the best tell is the RTC that shows we are still in a rising trend, though just barely.  In any case, this chart definitely does not look like one on the verge of a nervous breakdown.


History: According to The Stock Traders Almanac, this whole week is historically quite bullish.  In fact, April is number one ranked month of the entire year for the Dow, though you'd never know it so far.

Accuracy: Reminder - this is where I track how well my daily market close calls did.  Calls are based on the close of the Dow.

Month right  wrong

April   2      1

     And the winner is...

It's always tough calling a holiday shortened week, especially on the day before the holiday.  No doubt many of the big boys will be taking Thursday off, but oh no, not me.  I'm not smart enough for that.  Anyway, while I'm still not exactly feeling the love tonight, let's say I am feeling something of a casual friendship.  Given that the VIX and the dollar are both looking ready to reverse, and that they both called the last reversal correctly, and that people may realize that the world is not coming to an end, and that big one day dumps have tended this year not to be followed by a second day of big losses, I'm going to call for a higher close Thursday.  It may be more of a dead cat bounce than a real rally, but I do think the downside is limited from here.  That's all she wrote!

ES Fantasy Trader

Last night's short worked out well with a handy 12 point gain.  Thanks, Mr. Market!

Portfolio stats:  The account now rises to $137,750, after 28 trades (22 wins, 6 losses) starting from $100,000 on 1/1  Tonight we go long at 1397.00 at 1:48 AM EDT.

BOT    10    ES    false    JUN12 Futures     1391.00    USD    GLOBEX    11:15:40   

SLD    10    ES    false    JUN12 Futures     1403.00    USD    GLOBEX    01:33:23