Wednesday higher unless pivot broken

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

• Wednesday higher - low confidence.
• ES pivot 1401.17.  Holding above is bullish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader remains short at 1386.75.

Recap

They say "Sell in May" but they never say when in May.  Clearly, today was not the day.  After being up triple digits for a while, the Dow pulled back in to close up a still respectable 65.7 points on the strength of some unexpected (by me at least) ISM numbers.  And in so doing, it also finally cleared the 13,250 resistance level that has plagued us all year so far.  In fact, I had to go all the way out to the monthly chart to find the next resistance level, and that looks like 13,925 way back in November 2007, just short of the all-time high of 14,198 in October 2007.  Yowsa!  So are we headed back up to those rarified altitudes, or are the emergency oxygen masks about to drop?  The Night Owl (who admittedly got it wrong again today) continues to press on in search of market truth.

In Passing...

The Night Owl sees all, and tonight what caught my eye was a most kind mention of my blog in the blog dancingnakedonwallstreet.com.  This is one I was not familiar with, so I took some time to check it out.  I like the author's concise, practical approach to the markets in a weekly format.  I recommend my readers take a look.  And I should mention that there was no quid-pro-quo whatsoever involved here.  I just saw my name, visited the site, and liked what I saw.  So a tip of the Hatlo hat to RJ for some good work.  And I might mention that the Night Owl is a girl owl, not a boy :-)

The technicals

The Dow: Well we did close above 13,250 today but not by enough to put it convincingly behind us.  Right now I'm looking at the indicators.  RSI - overbought.  Momentum - declining for the third day.  Money flow - overbought.  OBV - overbought and at the same height from which previous market declines have occurred.  And the stochastic is also overbought and trying to form a bearish crossover but it's getting "threaded out" with the %K and %D lines pretty much just overlapping instead of crossing.  Still, today's big gain pretty much canceled last night's bearish RTC warning.  All of which sadly  leaves us without a clear technical picture of where the Dow may go next.  That's why we look at more than one chart every night.

The VIX:  The VIX continued its wayward ways today, dropping 3.21% on a fat hanging man that pretty much completes the bearish evening star pattern I mentioned last night.  And that is as good an indicator as any that the VIX could continue lower on Wednesday.  The VIX futures put in an even bigger drop relatively speaking today, supporting this view.

Market index futures: If there's any guidance to the future, tonight it comes from, well, the futures.  Today ES pierced its upper BB and then retreated, leaving us with a solid body conforming to a three day trading range.  While yesterday's losses were completely retraced, we didn't make any real headway.  And the indicators, which were already overbought, are now really overbought.  This chart just doesn't look quite as optimistic to me as the daily Dow.

On the other hand, it is impossible to ignore the fact that at 1:29 AM EDT all three futures are up by non-trivial amounts, with ES gaining 0.21%.  And since the upper BB is at 1408.38, we still have a few more easy points possible here before encountering more serious resistance at 1412.

ES daily pivot: Tonight the pivot jumps from 1395.25 to 1401.17.  Because ES has been wobbling upward in the overnight, we're still above this new number, so ES remains bullish.

Dollar index: The dollar, which respected support at 54.60 today (recall that I'm using $USDUPX rather than $DXY), managed to bounce right back up to its 200 day MA at 54.73 which is where is closed, on the dot.  This is most interesting.  You don't often see the Dow up and the dollar up on the same day.  And you can't blame the euro today either, since it just put in a spinning top.  Technically, the dollar's in limbo here.  It's stochastic suggests a move higher, but it's hemmed in by the 200 day MA.  The irresistible force versus the immovable object.  Which one will give in first?  No idea - we'll have to see how this resolves on Wednesday.

Transportation: The trans had a great day along with everything else today.  But they were nonetheless unable to break out of a five day range featuring support at 5220 and resistance at 5300.  The indicators are all confused right now and this average has alternated between gains and losses every day for a week now.  So the only conclusion we can draw is that since we're now at the top of the range, Wednesday's likely to be lower.  But if we can break above 5300, that would be bullish indeed.


History: According to The Stock Traders Almanac, Wednesday is historically almost as bullish as Tuesday, which was truly outstanding.

Accuracy: 

Month right  wrong  no call

April   7      9      2
May     0      1

     And the winner is...

While the charts aren't looking all that great tonight, the charts also haven't been too kind to my predictions lately.  So I think tonight I'm going to go with the futures which have put in only one red candle in the last seven, and call for a higher close Wednesday.  Still, this market can't remain overbought forever without going lower.  But it's just not right to keep calling for a lower close until it finally happens.  We are clearly due for lower sometime soon.  I'm just going to guess it won't be Wednesday.

But I will hedge that by noting that we are still pretty close to the ES pivot.  If ES should drop below 1401.17 on Wednesday morning, then look for a lower close.

ES Fantasy Trader

Portfolio stats:  the account still remains at $141,750, after 33 trades (26 wins, 7 losses) starting from $100,000 on 1/1  Tonight we are still not giving up on this trade and remaining short at 1386.75.  This truly defines the meaning of "taking the heat".  But if this one doesn't go our way soon, I'm just going to have to pack it in.  You know the old saying, "If at first you don't succeed, try try again.  Then give up.  No point being a damn fool about it."

Reminder - you can now follow these entries and exits live on Twitter @nightowltrader.  And let me note that I always buy on the ask and sell on the bid to make things more fair.  This way there's no question that the trade would have executed for real.  But also don't forget that because ES often moves quickly, the price may have changed in the time it takes me to type in the Twitter post.  Also keep in mind that these trades run with no stops and no preset targets.