Tuesday, April 10, 2012

Tuesday slightly higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday higher, low confidence.
  • ES pivot 1376.50.  Holding under is bearish..
  • Rest of week bias mixed technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader remains trapped long.

Well you sure didn't need a crystal ball today to see a dive in the Dow coming today.  The only thing that surprised me was that it wasn't worse than the 1% we lost.  In fact, for a while there it looked like we might retrace a lot of the opening losses until the bears came back out around 2:30 and knocked 'em lower into the close.  Will this continue on Tuesday or are we in store for a rally as some are suggesting?  The charts will speak to us now.

The technicals

The Dow: Today the Dow did pretty much the obvious, shedding 130 points and forming another solid red candle that keeps it solidly in a descending RTC channel that now includes four straight down days.  However, we hit the lower BB at 12,960 and then kept on going to 12,930.  And the indicators have all gone from overbought to oversold in just five days.  The stochastic in particular, while not yet forming a bullish crossover, is now lower than any time since the end of last November's ugly two week slide.  While there's nothing on this chart to suggest an immediate reversal, it's quite possible it might happen on Wednesday.

VIX daily
The VIX:  OK, this really merits a chart.  Check out the VIX today right here.  Here we have a chart that jumped 12.63%.  The VIX finished at 18.18, gapping up way above the upper BB at 17.42.  And it formed the mother of all hanging men in the process.  Oh yes, and its RSI hit 100 today.  It doesn't get any more overbought than that.

I had to go back to November 12, 2007 to find anything similar, a hanging man that gapped up way above the upper BB.  And the next day was down.  Down big.  And the Dow?  The next day it soared 332 points.  Not that that's a guarantee that this will happen again tomorrow.  But right now it looks like the VIX is much more likely to go lower on Tueday than it is to go higher and that would be very good for stocks.

Market index futures: Tonight, all three futures are up, with ES gaining 0.18% at 1:27 AM EDT.  That in itself is a good thing.  Today's ES candle was a long-legged doji, which is a decent reversal indicator.  And the indicators are all oversold now, with the stochastic just starting a bullish crossover.  However, we do remain inside the falling RTC, just like the Dow.

ES daily pivot: Tonight the pivot drops from 1385.67 to 1376.50.  And with ES wandering around vaguely higher from today's close, that now puts us above the pivot, finally.  Since this number now serves as support, that's a good sign for stocks.

Dollar index: Today the dollar completed its evening doji star (and not the bearish tri-star I was sort of expecting last night) but still moved lower as I was expecting by about half a percent.  With a bearish stochastic crossover now complete and RSI having peaked at overbought levels, the dollar looks ready to continue lower Tuesday which would be good for stocks.

Transportation: The $TRAN got badly beaten by an ugly stick today.  Not only did it drop 1.65%, but it has now traded for a second day outside its rising RTC and that's a bearish trigger.  And to top it all off, the indicators confirm that, moving clearly lower from a peak at overbought levels.  The only positive note here is that they have a modicum of support around 5175.  If that doesn't hold, we're going to the lower BB at 5157.

History: According to The Stock Traders Almanac, Tuesday is historically basically neutral.

Sentiment: Once again it's time for the latest weekly 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   8/8
  9  2/27       48         24        +     1366   9/9
 10  3/5        43         26        +     1370  10/10
 11  3/12       46         32        +     1371  11/11
 12  3/19       46         29        +     1404
 13  3/26       39         29        +     1397
 14  4/2        42         21        +     1408
 15  4/9        25         46        -     1398

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 3/12 was correct, the S&P now being higher than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 11 for 11.  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.

Notably though, for the first time this year, I voted bearish this week.  As we begin the second quarter, I'm finally beginning to see some technical reversal indicators on the monthly SPX chart.  See my weekend post  Is the Top In?   And it looks like the majority of the TS bloggers are with me.  This week also marks the first time this year that bearish sentiment has exceeded bullish.  And the change was as dramatic as it was sudden.  Bullish sentiment was cut nearly in half while bearish sentiment more than doubled.  The bulls and bears have essentially flipped from where they were on January 1st.

Recall that one week ago I wrote "I am seeing signs that a turnaround is coming, possibly next month.  This may be a good time to sell in May, as they say."  For the time being anyway, we seem to be on track for that.


Month right  wrong
April   3      2

     And the winner is...

Tonight I'm seeing signs of a market that wants to reverse but isn't totally committed to the idea.  That said, I keep coming back to that crazy VIX chart.  As I've often said here, the VIX rarely spends more than one day without reversing after hitting its upper BB.  And today we totally punctured that level.  This kind of move is almost always followed by a decline.  Now the conservative in me wants to wait for confirmation in the form of an RTC exit from the Dow or SPX, but I think the evidence from both the VIX and the dollar is compelling enough  tonight to call Tuesday at least marginally higher.

ES Fantasy Trader

Portfolio stats:  The account remains, for the time being, $137,750, after 28 trades (22 wins, 6 losses) starting from $100,000 on 1/1  Tonight we continue to remain long from last Wednesday's trade.  Patience may pay off in the end.

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