Tuesday, May 29, 2012

Tuesday higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Tuesday higher, medium confidence
  • ES pivot 1323.25.  Holding above is bullish..
  • Rest of week bias lower technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader standing aside.

It was a strange end to a strange week with the Dow tumbling 75 points on a pre-holiday weekend Friday over more worries about Greece - or was it Spain.  With renewed fears about Europe in what is becoming an annual tradition, are some halfway decent US economic indicators enough to move this market higher?  The charts may hold the answer so let's take a peek to see what's up - and down

The technicals

The Dow: After a big gain last Monday, the Dow spent the rest of the week in a state of confused (and confusing) consolidation.  Friday's failure to build on Thursday's gains and move above the 12,500 level is somewhat concerning.  It also cut short the trip the indicators had started to make up from oversold levels.  And more bad news - Friday traded outside the new rising RTC, a bearish setup.  We're going to need a close above 12,610, or 155 points from here, to avoid a bearish trigger.  It's certainly doable, but I don't think it's likely.

The VIX:  The VIX  closed up a percent on Friday and respected its support at 22, though on a red candle.  I'm more concerned about the indicators that appear to be bottoming before even reaching oversold levels.  The stochastic in particular looks to be gearing up for a bullish crossover, either Monday or Tuesday, and a rising VIX is bad for stocks.

Market index futures: Tonight, all three futures are up significantly, with ES trading higher by 0.82% at 1:14 AM EDT, likely on - don't laugh - news of Greek political polls.  Um, okey dokey - whatever.  The good news is that this keeps us inside the rising RTC from 5/21 with a decent-looking green candle.  The bad news is that the idicators just entered overbought territory.  That doesn't mean an immediate drop, but bears watching.

ES daily pivot: Tonight the pivot rises from 1318.92 to 1323.25.  After bouncing off the old pivot at 8 PM Monday evening (a good sign), ES got on an uptrend that continues as I write and is good enough to keep us above the new pivot - another good sign.

Dollar index: Meanwhile, the dollar continued its march higher on Friday climbing right back into its month-long rising RTC with a 0.04% gain in the form of a doji.  But we've seen four such reversal warnings in the current trend and none of them have played out.  But the dollar has been overbought for 15 straight sessions now.  I searched back though all the daily data eSignal provides for $USDUPX and was unable to find any streak longer than this, back to 2007.

But none of this amounts to a hill of beans because the dollar's not coming down until the euro stops going down.  And I don't think that's going to happen until it hits 1.20, its June 2010 support.  I'm sure we're going to see that level within two months.  In the meantime, the euro's daily lower BB is at 1.2392 and we're at 1.2537 right now, so there's even short-term room to run lower.  Bad for stocks?  Probably, although it seems that we might be starting to see some decoupling between stocks and the dollar.  This will bear close watching.

Transportation: The trans appear to have run into some strong resistance at 5110, established as support back on 5/14-16.  And although they remain in a rising RTC, the indicators are getting tired after coming off oversold on 5/21.  Add in Friday's 0.56% decline and I'm not feeling the love from this chart.  I'd say some lower trans are in the offing this coming week.

History: According to The Stock Traders Almanac, Tuesday is historically slightly bullish.

Accuracy (daily calls):

Month right  wrong  no call  conditional
April   7      9      2
May     8      7      3           1

     And the winner is...

I'm starting to see some warning lights flashing on the charts, but they're mostly for later this week.  I think the positive action in the overnight futures plus the lack on an immediate confirmed downtrend, plus some recent positive news on stimulus for the Chinese economy will be enough to merit a higher close Tuesday.

ES Fantasy Trader

Portfolio stats: the account now falls to at $117,500 after 37 trades (28 wins, 9 losses) starting from $100,000 on 1/1.  Tonight we are, regrettably, standing aside.  I wish I had gone long earlier this evening and I'm afraid I've missed most of this particular bus.  Oh well - there'll always be another bus along soon.

CUA (Commonly Used Acronyms)

BB - Bollinger Bands
MA - Moving Average
RTC - Regression Trend Channel

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