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- Wednesday uncertain.
- ES pivot 1406.25. Holding above is bullish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias uncertain.
- ES Fantasy Trader remaining short at 1396.00.
Well it looks like the bulls finally gave up the ghost today. The Dow might have shed only 14 points but the important point is that they never even threatened the 13,050 level that had been such a bone of contention for the last three day. But there are some interesting developments in the overnight so we'll take a close look at the charts to see what Wednesday may hold in store.
The technicals (daily)
The Dow: Yesterday's loss provided us with a bearish RTC setup and then today's smaller loss gave us the bearish trigger. We have now officially exited the last rising RTC. Coupled with a failure to recapture the 200 day MA today and indicators that continue to retreat off overbought, it's looking like there's more room to run lower for the Dow on Thursday.
The VIX: I got my hat trick today, having correctly called the VIX higher for three consecutive days, as it gained another 2.88% today. The VIS now has a bullish three white soldiers pattern going, and a new rising RTC. However, it just entered overbought territory today and is now sitting just under its 200 day MA at 17.54. That said, the VIX does not respect its 200 DMA as well as a lot of other charts. But with no other resistance in sight and futures that are not yet overbought, I'm going to see if I can go for four and call the VIX at least a bit higher on Wednesday.
Market index futures: Tonight all three futures are actually up at 1:23 AM EST with ES higher by 0.30%. I think this chart is the crux of the matter tonight. Here we have an interesting situation. Today's candle was a doji star sitting just under Monday's red candle. It also ended perched precariously exactly on the right edge of the rising RTC, at 1405.50. Call it a bearish setup. But the gain in the overnight so far has brought us very close to getting back into the RTC. This evening high at 1413.00 in fact just touched the RTC. And the new candle is forming a bullish engulfing pattern. But see my comments on the euro below for the hazards of relying too much on unfinished candles. So this chart is far from clear.
ES daily pivot: Tonight the pivot steps down from 1411.83 to 1406.25. This evening's rise in ES combined with this drop in the pivot put us on the plus side right at midnight, a bullish sign.
Dollar index: For the second day in a row the dollar gapped down today, losing another 0.30% and riding a steeply falling lower BB. It also remains inside a declining RTC. I'm wanting to say this could indicate a rise is on the way via a gap-filling impulse, but this chart's really not clear enough to call for Wednesday.
Euro: Wednesday's euro action well illustrates the perils of working off a half-cooked candle. What was looking like a spinning top last night ended up being a green marubozu as the euro posted its fourth stright gain to remain solidly inside its rising RTC. But after continuing higher most of the evening, it appears to have peaked at 1.3130 and is now moving lower. That's not unexpected as 1.3130 marks resistance all the way back to September. And the euro is now as overbought as it was the last two times it hit this level and also bumping along its upper BB as it was then. My guess is that it won't have any more luck pushing higher this time so I'm expecting a move lower on Wednesday.
Transportation: I did get this one wrong on Tuesday. The trans did not go lower, instead gaining 0.26% on a classic spinning top. That's a reversal warning but not a great one. And the indicators are still just under halfway from overbought to oversold. And significantly, today's gain was entirely outside the last rising RTC and that's a bearish trigger. So I think further declines in the trans are possible on Wednesday.
Accuracy (daily calls):
October 8 5 8 0 .615 208
November 7 5 5 0 .583 135
December 2 0 0 0 1.000 74
And the winner is...
After poking around a bit, I think that this evening's rise in the futures is due to some wire stories that the Fed is expected to announce new bond buying next week as an antidote to fiscal cliff jitters. Technically, the market is still looking bearish, though not nearly as much tonight as last night. It's difficult to know how Mr. Market will react on Wednesday morning. I've seen many cases where the futures were doing well around midnight, only to disintegrate into the open. Indeed, the hourly ES chart seems to suggest that this move is over.
In addition, both copper and the currencies are not looking particularly strong as you might expect in an incipient rally. So call me skeptical. The futures are the only thing guiding higher right now. Logic would dictate that I call Wednesday lower based on the charts. Still, I can't shake the feeling that someone knows something I don't right now, so tonight I'm just flipping a coin. And - oh my - it landed on its edge. So that makes Wednesday uncertain.
ES Fantasy Trader
Portfolio stats: the account remains, for the time being, at $198,000 after 72 trades (57 wins, 15 losses) starting from $100,000 on 1/1/12. Tonight we remain short at 1396.00. may live to regret hanging on this long, but let's see what Wednesday brings.