Wednesday lower

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

• Wednesday lower, medium confidence..
• ES pivot 1415.08.  Holding below is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader going short at 1410.75.

Column of the Day

What Ayn Rand Taught Paul Ryan , by Michael Kinsley on Bloomberg.com today.  A very funny Ayn Rand send-up.  The Night Owl gives it four hoots.

Recap

Last night I thought we'd be in for another doji day today but that was not to be as instead we got a red candle that confirmed yesterday's dragonfly doji and took us right back down to the 13,200 area that has served as resistance last week but is now support.  At least this wasn't more of this sideways noodling around.  No we have something to work with, so let's get to it.

The technicals (daily)

The Dow: Well unlike last time around the Dow did not keep us waiting for over a week to decide which way to go.  Today it clearly chose lower, shedding 68 points to kill a developing trading range.  More importantly, this decline sent the indicators off top-dead-center and down the slope from overbought, as well as completing the bearish stochastic crossover I mentioned last night.  Right now this chart is definitely looking toppy.

The VIX:  I guess I was wrong about the VIX too.  Instead of going lower, it gained a significant 7.13% today to bring us just above our recent resistance.  With this tall green candle, indicators just coming off oversold and rising futures, it now looks like we could see more upside to the VIX on Wednesday.

Market index futures: Tonight all three futures are down at 1:20 AM EDT with ES lower by 0.28%.  Today's ES candle was a big spinning top with an extended upper shadow, making three dojis in a row.  Now the overnight seems to be confirming that.  Last night I made a big mention of the 1415.50 level as being the make or break for ES.  We gave that up early this afternoon and it's been downhill ever since.  This now give us the bearish RTC trigger, one of the best technicals I've got.  This chart is looking nothing but lower.

ES daily pivot: Tonight the pivot bumps up from 1414.08 to 1415.08.  With ES running under since mid-afternoon, this only leaves us a bit more under the new level, a bearish sign.

Dollar index: Here's an interesting divergence.  While the Dow dropped half a percent today, the dollar also fell and impressive fashion, dumping 0.70% on a gap-down red candle that blew right through recent support and took it clear to its lower BB.  This is the sort of action that would lead me to expect some sort of gap-filling or DCB on Wednesday.

Euro: And today the euro put in a tall green candle for its biggest gains since August 3rd.  And as the dollar moved to it slower BB, the euro moved to its upper BB.That leaves it quite overbought and suggests the possibility of moving lower on Wednesday.

Transportation: The trans, seemingly not having gotten the message yet, rose 0.07% today but did it on a wide-ranging doji, the second in a row.  With indicators that are now way overbought, a flattening out of the recent uptrend and a stochastic gearing up for a bearish crossover, my bet's for the short side on Wednesday.

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632
July   11      2      6           1        .857     917
August  6      4      4           1        .636      17
     And the winner is...

I am concerned that the market dropped today at the same time as the dollar.  Usually, they move in opposition.  This failure to move higher in the face of a lower currency raises some red flags.  We're also startig to see some more clearly defined bearish signs in the charts.  Tonight I am definitely not feeling the love and took out some SDS as a hedge at 14.15 earlier today.  Today's drop did not feel like sideways trending and I think we now have the clarity I was looking for last night.  Therefore I'm calling Wednesday lower.

ES Fantasy Trader

Portfolio stats: the account remains at $166,625 after 57 trades (43 wins, 14 losses) starting from $100,000 on 1/1/12.  Tonight we're going short at 1410.75 on an unusual early evening entry.  I believe we're now seeing an edge that is tradeable.  Reminder: you can follow these trades live on Twitter @nightowltrader.

CUA (Commonly Used Acronyms)

BB - Bollinger Bands
DCB - Dead Cat Bounce
MA - Moving Average
RTC - Regression Trend Channel
YTD - Year To Date

Disclaimer: (My lawyer made me do it) This blog is not trading or investment advice, account management or direction.  All trades listed here are presented only as examples of the author's personal trading style.  Investing entails significant risk and trading entails even greater risks.  Act accordingly.