Tuesday, May 22, 2012

Tuesday higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday higher - low confidence
  • ES pivot 1306.33.  Holding above is bullish..
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader remains long at 1365.00.

Ha - now that's what I'm talking about.  We finally got the up day I've been expecting for a few days now.  And it was a solid move higher on average volume.  Now of course, the question becomes, was this a one-off?  After all, the Dow has not managed two consecutive up days since April 26th.  Or are we going to see some sort of rally from here?  The charts just may hold a clue.

The technicals

Dow daily
The Dow: We begin with the Dow.  Three notable things here.  First, today's solid green candle compares favorably the recent down days we've had.  This was not some wimpy 20 point blip but a solid 135 point gain.  Second, it was big enough to take us to a close outside the descending RTC for the first time since it began on May 2nd.  That is the classic RTC bullish setup.  One more close outside and we get a bullish trigger.  And last, note the Lazarus Effect as all five indicators have now - finally - risen from the dead, a very bullish sign.  All in all, I'm liking today's chart a lot, something I haven't been able to say in a while now.

The VIX:  After spending an eternity clambering up its upper BB, the VIX finally relented today in a big way, dropping 12.31% back to 22.  It's 200 day MA acted as sort of remote control resistance and we stopped just a bit outside of the rising RTC here.  Close, but it still counts as a bearish setup.  And with its indicators now clearly dropping off their overbought peaks, there would appear to be more downside to come for the VIX.

Market index futures:All three futures are in the green at 1:52 AM EDT, though by smaller amounts than last night.  ES is up 0.15%.  Today's huge green candle in ES took us right to the very edge of the descending RTC, just shy of a bullish setup.  But with the overnight sustaining the gains, we're now outside the channel, a good indication that the downtrend is over, particularly since this one has a strong Pearson's coefficient of 0.971.

ES daily pivot: Tonight the pivot rises (finally) from 1297.00 to 1306.33.  With ES pretty much flat in the overnight so far, we're still above the new value, but now only by half as much.  However, as I write this section, ES has begun moving higher again..  Anyway, it's still a positive sign.

Dollar index: Last night I showed this chart pointing out a possible bearish candlestick pattern.  Sure enough, it was confirmed today as the dollar dropped another 0.24% and as a bonus, closed outside it recent rising RTC.  Just as the Dow gave us a bullish setup, this for the dollar is a bearish setup.  All signs here point to more dollar downside Tuesday.

Transportation: As bad as the trans looked yesterday, that's how good they looked today.  With the Dow up 1.09%, $TRAN was up a giant 2.65%, blasting right back up through the 200 day MA in a big way.  This solid green bullish engulfing pattern looking very promising.  The fact that it came seemingly out of nowhere, chart-wise, is even more encouraging.  A reversal higher when the signs are pointing lower is something to pay attention to.

And as an aside, we note that copper had a good day too, giving us a bullish setup out of its own descending RTC.  Just what the Doctor ordered!

History: According to The Stock Traders Almanac, Tuesday is historically fairly bearish.

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  11/12
 13  3/26       39         29        +     1397  11/13
 14  4/2        42         21        +     1408  11/14
 15  4/9        25         46        -     1398  12/15
 16  4/16       26         48        -     1370  13/15
 17  4/23       30         48        -     1379  14/16
 18  4/30       44         32        +     1403
 19  5/7        23         50        -     1350
 20  5/14       32         44        -     1353
 21  5/21       30         52        -     1295

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 bearish call on 4/23 was right, the S&P now being lower than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 14 for 16.  And of course that means that since I voted with the majority back then, the poll as a whole was also correct that week.  So with one third of the year gone the poll's accuracy rises to 88% YTD.  Not too shabby.

This week it's interesting to note that while bearish sentiment jumped considerably since last week, bullish sentiment dropped just 2 points.  We are now at the highest bearish reading of the year, not surprisingly perhaps given the price action we've seen this month so far.  Still not quite the numbers I'd like to see for a contrarian bullish call though.  And for the record, I voted bearish once again this week based on my reading of the monthly SPX chart.

Accuracy (daily calls):

Month right  wrong  no call  conditional
April   7      9      2
May     7      5      2           1

     And the winner is...

It seems like every night recently we've been getting mixed messages from the charts - some say up, others say down.  Tonight though, everything seems to be pointing up so I'm going to call for another higher close Tuesday.  I say this with some trepidation since the bears have been so solidly in control all month and after a big gain like today, you might expect some profit taking to follow.  But this reversal has a solid feel to it.  If I was just returning from a 20 year trip to Mars and saw today's Dow chart for the first time, I'd definitely not be wanting to short it.

ES Fantasy Trader

Portfolio stats:  the account remains $150,125 after 35 trades (28 wins, 7 losses) starting from $100,000 on 1/1  Tonight we're once again still holding on to this long at 1365.00.   We're still feelin' the heat and basking in its glow, although we did make back a good chunk of our as yet unrealized losses today.

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