Wednesday lower

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

• Wednesday lower, medium confidence.
• ES pivot 1400.25.  Holding below is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader going short at 1396.00..

Recap

Last night I called this a sneeze market, where Mr. Market is going "ahh... ahhh..." but not "choo".  Well we can thank Harry Reid today for providing the "choo" today and turning a nice gain into an ugly 89 point loss for the Dow.  Thanks a bunch Harry, you destroyer of wealth, you, you ... politician, thanks for nothing.  Ahem, OK, now that I've got my feathers unruffled, let's get right to the charts.

The technicals (daily)

The Dow: You can see on this chart the very instant the Dow collapsed when Dirty Harry opened his mouth: 2:21 PM.  Which is a bit puzzling in a way because I have very little faith that Congress will do much more before the end of the year other than what Congress does best - kick the can down the road.  So negative comments about the fiscal cliff should come as a complete surprise to absolutely no one.  But politics aside, today's action was particularly damaging technically.  It dropped us out of the rising RTC for a bearish setup, it caused a top in RSI, and just completed a bearish stochastic crossover.  That's three strikes, yer out!

The VIX:  And today's news certainly woke up Mr. VIX, as the index gained 2.71% to form a bullish engulfing candle and bottoming out the indicators from oversold levels.  Last night I wrote about "further VIX gains on Tuesday" and I'm going to call for the same on Wednesday.

Market index futures: Tonight all three futures are down at 1:02 AM EST with ES lower by 0.11%.  Today's ES story was pretty much the same as the Dow.  We dropped out of the rising RTC for a bearish setup and the bearish stochastic crossover is now complete.   Further downside in the overnight provides the bearish RTC trigger and with the indicators remaining highly overbought, it looks like there's more downside risk than upside potential here.  I'll add that the SPX Hi-Lo index hit 100 yesterday, and that' usually a good sign that we're going lower soon.

ES daily pivot: Tonight the pivot ticks down from 1401.08 to 1400.25.  We broke under the old number Tuesday afternoon and remain below the new pivot, so that's all bearish.  Though ES did drift a bit higher this evening, it's not really showing much appetite for mounting an attack on the pivot, so far at least.

Dollar index: Yesterday' little reed hammer was confirmed today as the dollar gained 0.20% on a move that moved the stochastic into position to execute a bullish crossover on Wednesday.  With RSI having bottomed in oversold territory, I'd say the dollar has more room to run here.

Euro: And that theory is supported by the behavior of the euro which today was unable to make it past resistance at 1.3000, posting a decline that dropped it out of a 10 day rising RTC for a bearish setup.  And it's trading lower again in the overnight - there's your bearish trigger.  And the bearish stochastic crossover is now completed and confirmed.  The euro appears to have topped here and is ready to move lower.

Transportation: The trans did not fare as badly as the Dow today, losing just 0.15% but they did give us a spinning top warning of a reversal.  Coupled with the highly overbought indicators, I'd pay attention to this one even though we remain inside the rising RTC.  I'll add that the trans stopped just short of the 200 day MA intraday and I'm thinking that today may have been a top.

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 (it's getting pretty long):

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  21/35

 36  9/4        31         38        +     1407  22/36

 37  9/10       54         29        +     1438  23/37

 38  9/17       63         22        +     1466  23/38

 39  9/24       52         30        +     1460  23/39

 40  10/1       39         39        -     1441  24/40

 41  10/8       52         34        +     1461  24/41

 42  10/15      41         32        -     1429  25/42

 43  10/22      38         41        -     1433  26/43

 44  10/29      36         43        -     1412  27/44

 45  11/5       44         33        -     1414

 46  11/12      38         46        -     1380 

 47  11/19      52         34        +     1360

 48  11/26      48         26        +     1409

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 10/29 was right, the S&P now being lower than then. I'm using the column "Accuracy" to track my calls.  So now with just four weeks to go in 2012, I'm 27 for 43 or 63%.  Interestingly, this number is close to my average daily call performance as measured below.

For the record, I voted bullish again this week.  And this week we see that bullish sentiment declined a bit but bearish sentiment declined eight points indicating that some people are moving to the sidelines, possibly reflecting uncertainty over the fiscal cliff.  All I go by though is the weekly and monthly SPX charts.  I look for regression trends and stochastic crossovers and for the moment at least they're looking good.

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  8      6      5           0        .571     -19 
October    8      5      8           0        .615     208
November   7      4      5           0        .636     242

     And the winner is...

Tonight the evidence clearly favors the bears.  I'll add that copper took a beating today, down 0.92% but remaining overbought and TLT completed a bullish stochastic crossover.  In fact I can't find any real bullish (for stocks) signs anywhere tonight so I'm simply calling Wednesday lower.  Things were looking bad enough that I took out some SPXS at 18.21 just after the close to hedge my longs.

ES Fantasy Trader

Portfolio stats:  the account remains at $198,000 after 72 trades (57 wins, 15 losses) starting from $100,000 on 1/1/12.  Tonight we go short at 1396.00.  You can follow these trades live on Twitter @nightowltrader.