Tuesday lower

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

• Tuesday lower, low confidence.
• ES pivot 1454.50.  Holding below is bearish.  Now using  "Z" contract.
• Rest of week bias lower technically.
• Monthly outlook: bias uncertain.
• ES Fantasy Trader going short at 1454.75.

Recap

We basically got the drop I was expecting today as the Dow proved unable to breach last Friday's close in a kind of lackluster session due in part no doubt to a religious holiday.  Is a short-term top in or was this another fake-out breakdown?   This is going to be another interesting week, as triple-witchings always are.  Let's check the charts.

The technicals (daily)

The Dow: Today the Dow dropped 40 points on a bearish harami candle.  However, this is a pattern that really requires confirmation, especially since today's session wasn't quite normal.  I do note though that RSI, momentum, and money flow have all peaked at overbought and are now headed lower, a bearish sign.

The VIX:  Today the VIX gained just 0.55% following yesterday's rise with a small doji.  We're still just coming off oversold here and have yet to retrace 50% of last week's big drop.  However, the futures were actually lower today, and lower on a dark cloud cover.  So the picture for the VIX is muddled.  This one is too tough to call.

Market index futures: Tonight all three futures are actually up just a bit at 1:16 AM EDT with ES higher by 0.07%.  Like the Dow, ES today failed to advance beyond Friday's highs and the developing candle is sitting right on the edge of the rising RTC for a bearish setup.  1455 is the key level here for ES (Remember, I have now switched over to the "Z", or December contract).  Higher, bullish; lower, bearish.

ES daily pivot: Tonight the pivot drops from 14458.83 to 1454.50.  With ES wobbling higher over the evening, we're actually above the new number now, though by less than a point.  This puts the pivot in play.  If we break back under it before the open on Tuesday, that's decidedly negative.

Dollar index: Yesterday's doji was confirmed today as the dollar finally moved higher, up 0.16% for its first gain in nine sessions.  But all it really did was give us another doji and the small move still keeps us inside the descending RTC.  Still, being as oversold as we are, I'd bet on the dollar moving higher before it goes lower from here.

Euro: Meanwhile, the euro moved in mirror image to the dollar.  Today's red spinning top is being followed by lower action in the overnight.  While we're still inside the rising RTC, a move below 1.3057 would be a bearish setup.  Even before that, the chart seems to be topping here.

Transportation: This is probably the weakest chart of the bunch tonight.  While the Dow lost 0.30%, the trans dumped 1.45% today on a long red marubozu that was stopped only by the 200 day MA at 5134.  Five of the last six times  the trans stopped in that position, they were lower the next day.  And like the Dow, the indicators seem to have all topped at overbought and are headed lower, a bearish sign.

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  13/16
 17  4/23       30         48        -     1379  14/17

 18  4/30       44         32        +     1403  14/18

 19  5/7        23         50        -     1350  15/19

 20  5/14       32         44        -     1353  16/20

 21  5/21       30         52        -     1295  16/21

 22  5/29       35         42        -     1318  16/22

 23  6/4        32         48        -     1278  16/23

 24  6/11       28         40        -     1326  16/24

 25  6/18       39         26        -     1343  16/25

 26  6/25       38         46        -     1335  16/26

 27  7/2        41         40        -     1362  16/27

 28  7/9        42         38        -     1355  16/28

 29  7/16       44         32        -     1357  16/29

 30  7/23       33         42        -     1363  16/30

 31  7/30       43         22        +     1386  17/31

 32  8/6        52         28        +     1391  18/32

 33  8/13       43         21        +     1406  19/33

 34  8/20       46         31        +     1418  20/34

 35  8/27       39         29        +     1411 

 36  9/4        31         38        +     1407

 37  9/10       54         29        +     1438

 38  9/17       63         22        +     1466

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 8/27 was right again, the S&P now being higher than then. I'm using the column "Accuracy" to track my calls.  So now I'm 20 for 34, or 59%.  For the record, I voted bullish again this week based on my reading of the SPX monthly and weekly charts.
This week we find a most interesting development. Bullish sentiment jumped to its highest level of the year.  In fact the last time it was higher was at the start of November 2011, and recall that last November was an awful month.  And bearish sentiment dropped 7 points to just one point above its lowest level for the year.  With a 41 point spread, this is starting to make me a bit uneasy.  We may in fact be reaching contrarian bearish levels here.


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    8      6      8           1        .600     -78
September 4      3      3           0        .571     -76

Politics: Here's a news item from the CBC News that's now over a week old, and while it got virtually no media play, at least here in the US, I find to be fairly disturbing: Canada closes embassy in Iran, expels Iranian diplomats.  Now why would Canada suddenly and without warning sever diplomatic relations with Iran?  While there's been some grumbling in Canada about human rights issues, that's nothing new and no one has been storming Canadian embassies or burning Canadian flags lately.

What has been happening is increasingly strident noises from Israel about taking out Iran's nuke facilities, and by "taking out" I don't mean dinner and a movie.  If this happens, the market's gonna tank.  But I don't think Israel will act before our elections.  With Romney acting decidedly more friendly towards Israel than Emperor Nerobama (who has been downright hostile), the Israelis probably will want to wait and see if Romney can get elected before launching any attack.  So we're probably safe until then.  Either way though, this situation bears watching.  And I'll bet our friends in the Great White North know something they're not saying.
 
     And the winner is...

I'm a bit concerned that the futures are not running any lower at this time of night, but the overall tenor of the charts remains bearish and on that basis I will call Tuesday lower.

ES Fantasy Trader

I think I had the right idea about going short last night, but by this afternoon something didn't feel quite right.  Maybe it was just the lack of market participation, but I decided to just pull the plug on this trade for a small 1.25 point profit.  I can always get back in again later if it seems warranted.

Portfolio stats: the account now rises to $178,750 after 63 trades (48 wins, 15 losses) starting from $100,000 on 1/1/12.  Tonight we go short once again at 1454.75.

BOT    10    false    ES    SEP12 Futures     1460.75    USD    GLOBEX    14:31:03    

SLD    10    false    ES    SEP12 Futures     1462.00    USD    GLOBEX    01:08:24   


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.