A bit more upside possible Friday

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

• Friday higher, low confidence..
• ES pivot 1290.00.  Holding over is bullish..
• Next week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

Things were looking good for my call for a slightly lower close today until a late day rally hoisted the Dow to a modest 22 point gain.  Nevertheless, the Dow continues to have trouble cracking resistance at 12,500.  Will Friday be the day?

The technicals

The Dow: Today's gain came in the form of a second hanging man in a row.  As we've seen before, one hanging man, bad - two hanging men, real bad.  There's no guidance at all from the indicators which are all still stuck in overbought-broken mode.  But the candlesticks are looking bearish.

The VIX: The VIX has been putting in some strange looking candles the past few days with a big inverted hammer today.  Meanwhile it just continues to trend lower.  There's some support at 20 just below today's close but that's about it.

Market index futures: The futures on the other hand are all running in the green tonight.  At 1:40 AM ES is up a non-trivial 0.23%.

ES daily pivot: Rose nearly five points to 1290.00 tonight but ES just continues to move up up and away.  Rising away from the pivot is a positive sign.  The funny thing is that while the Dow is looking toppy, Es just seems to keep climbing the wall of worry.  After two doji days in a row, we're simply continuing higher.  We've left the 1279 resistance line in the dust.  At this point there is no resistance until the psychological 1300 level and then the upper BB at 1311.

History: According to The Stock Traders Almanac, Friday is only slightly more bullish than today.

     And the winner is...

Hard to say, once again.  I have the feeling that this rally is getting a bit old here.  I have yet to have a losing day this year after eight sessions and my trading account is up 4.7% YTD.  Clearly this is unsustainable.  In fact, it's starting to remind me a bit of the way last year began.  We're getting overdue for a pullback and I expect one sometime over the next few days.

Will it be tomorrow?  I'm guessing not.  I still just don't really see enough technical reversal signs or bad economic news lately.  I think we have one more day of gains possible on Friday before some profit taking sets in.  I'm more cautious about the early part of next week.  We'll just have to see.

ES Fantasy Trader

Tonight we threw in the towel on our short for a loss of 12 points.  We are now going to stand aside for a day to avoid getting whipsawed.

Portfolio stats: the account drops to $97,375 after 4 trades (2 wins, 2 losses)

BOT 10 ES false MAR12 Futures 1294.75 USD GLOBEX 01:24:23
SLD 10 ES false MAR12 Futures 1282.75 USD GLOBEX JAN 10 20:15:24

Thursday looking a bit lower

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

• Thursday uncertain, weak bias lower..
• ES pivot 1285.67.  Holding over is bullish..
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader holding short at 1282.75.

Recap

Last night my best guess was that we'd see another doji day today.  We did have some fairly uninspired action, though not a doji.  It was one of those down right out of the gate, then slowly meander back up kind of days.

The technicals

The Dow: While we did end just 13 Dow points down from where we began, it was on a very clear hanging man candle and that is a good bearish reversal pattern.

Market index futures: Like last night, all three futures are down, but tonight it's just barely.  Nonetheless, the overnight's failure to advance so far (at coupled with today's clear hanging man mirroring that of the Dow is a sign to me anyway that this market is running out of steam.  It seems to me that we're overdue for at least a small retrenchment anyway.

ES daily pivot: Rose slightly to 1285.67 tonight.  Even at that, ES is still holding just over that level at 1287.00.  Remaining here is bullish on the face of it.

Morningstar Market Fair Value Index: The index continues to rise, hitting 0.90 yesterday, definitely a positive sign.

History: According to The Stock Traders Almanac, there is no historical edge to Thursday.

     And the winner is...

Well we're still getting a bit of a mixture of messages tonight but the balance seems to be tipping in favor of the bears.  I think we're about due for at least one down day and Thursday may be it.  Probably not a big loss but I'm more bearish than bullish on Thursday right now.

ES Fantasy Trader

Tonight we're hanging on to our underwater short.  Portfolio stats: the account remains $103,375 after 3 trades (2 wins, 1 loss)

Wednesday uncertain

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

• Wednesday uncertain, weak bias lower..
• ES pivot 1284.17.  Holding over is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader went short at 1282.75.

Quote of the Day

"Even in a good market year it is typical to have a 15% drawdown at some point."

                                                    -  Jeff Miller, "A Dash of Insight" (see blog sidebar)

Recap

Last night my call was simply "Tuesday higher" and that's just what happened with a pleasing 70 point gain in the Dow.  Is there any more upside left here?  Let's spin the wheel and find out.

The technicals

The Dow: Today the symmetrical triangle resolved to the upside demonstrating once again what a great pattern this is.  But today's close at 12,462 also left us in the middle of a resistance band from the middle of last July.  From here we have resistance at 12,500 and then the upper BB at 12,531.

Daily VIX

The VIX: Here's an interesting chart I really want to share with you.  First notice the symmetrical triangle I pointed out last week.and how it finally resolved to the downside on January 4th.  Then recall how I mentioned the dark cloud cover last night.  Worked like a charm.  Today the VIX gapped down 1.8%.

Two important things now: first, today's decline came on a green candle and second, notice how the stochastic is just making a bullish crossover (bottom row).  These both suggest the possibility of a higher VIX on Wednesday which would be bearish for stocks.

Balancing this is the fact that today's close of 20.69 still leaves us a bit shy of the lower BB at 19.4.  When declining, the VIX often (but not always) makes it all the way to the lower BB before reversing.

Market index futures: Unlike last night, tonight all three futures are back in the red with EES down 0.19% at 12:45 AM EST.  But today's big green candle finally broke us out of the narrow trading we'd been stuck in for the last five sessions with the triangle here also resolving higher.  What's concerning me in tonight's chart is that OBV has peaked and is now declining after rising since December 19th.  While the other indicators are pretty much stuck in overbought-broken mode, a peak in OBV is often a good bearish reversal signal.

ES daily pivot: Rose to 1284.17 tonight.  This puts ES just under the new value.  And ES just finished an attempt to break through but was rejected.  The longer we hold under the pivot, the more bearish I feel.

Dollar index: Last night I wrote "Today's decline should be followed by more on Tuesday", and so it was, with the dollar gapping down for a 0.35% decline.  And it may still not be over as the $USDUPX is just now making a bearish crossover on its stochastic.

Copper: Very much contrary to my expectations last night, copper took a big gap up today clear to its upper BB.  That alone increases the chances that it will go lower on Wednesday.

Morningstar Market Fair Value Index: Yesterday the index rose to 0.89.  While a rising index is good for stocks, the 0.89 level represents resistance.  We haven't been above this level since last November 8th suggesting that further short term gains may be harder to come by.

History: According to The Stock Traders Almanac Wednesday is historically on the minus side for all three major averages.

     And the winner is...

Not looking as clear to me as the individual components of the analysis might suggest.  Right now I'm seeing some headwinds building but not a lot of downward pressure yet.  As I wrap this up just after 2 AM, I note that ES has broken above its pivot and is trending higher.  If it doesn't come back down by the open, we may very well see at least some more gains on Wednesday.  Otherwise I'm going to go out on a limb and guess we see another doji day on Wednesday.

ES Fantasy Trader

Today we took a profit of 6.5 points just before lunch.  It was one of those cases where it just looked best not to get too greedy, a decision that paid off later on as the day moved lower.  Portfolio stats: the account remains $103,375 after 3 trades (2 wins, 1 loss).  On Tuesday night we go short at 1282.75 at 8:15 PM.

BOT    10    ES    false    MAR12 Futures     1282.00    USD    GLOBEX    01:10:39

SLD    10    ES    false    MAR12 Futures     1288.50    USD    GLOBEX    11:40:00 
 

Tuesday looking higher

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

• Tuesday higher, high confidence.
• ES pivot 1273.50.  Holding above is bullish..
• Rest of week bias higher technically.
• Monthly outlook: bias up.
• ES Fantasy Trader went long at 1282.00.

Recap

Last night was a tough call.  I'm glad I paid attention to the VIX to temper my impression that a top might be in, since we did end up going up by 33 Dow points today.  I said "Monday may just give us yet another day like we've been seeing the past four sessions."  Now make that five.  Go for six maybe?  Let's see...

The technicals

Daily Dow

The Dow: With a range of just about half of Friday's, the symmetrical triangle I spoke of last night continued to develop today.  Check it out in this daily chart and see if you don't agree.  It's not perfect, but it's pretty good.

It looks like there's room for maybe one more day of action to compress this spring, and then boiing!  Remember, most often these things resolve in the direction of entry, and here that would be up.  It could happen Tuesday, and if not then, then on Wednesday.

Also, the High-Low index has come down off its highs from the end of the year and that is an encouraging sign too.

The VIX: The VIX actually gained a bit today but did it on a red candle that's actually a good dark cloud cover and that's a high reliability bearish reversal indicator.  A lower VIX should also help stocks on Tuesday.

Market index futures: For once we're getting some non-trivial upside in the overnight.  ES is up just over half a percent at 1:15 AM EST.  It looks like the ascending triangle that's been developing in ES for the last five days is finally starting to resolve to the upside.  ES has been trending up steadily since today's close.  My only concern is that we're right at a resistance line at 1282 now.  This is a level that has stymied the market for five straight days now.  However, Tuesday may just be the day of the breakthrough.

ES daily pivot: The pivot actually dropped a bit to 1273.50.  This puts us comfortably above the pivot which is a bullish sign.

Dollar index: The dollar seems to have peaked short term after two days of gap-up gains that left it quite overbought.  Today's decline should be followed by more on Tuesday, another positive signs for stocks.

Copper: Striking something of a bearish note, copper is now clearly in a downtrend on the daily charts.

Morningstar Market Fair Value Index: Today the index

History: According to The Stock Traders Almanac, Tuesday is basically flat.  Note that despite the widely publicized "January Effect", January is only the 6th best month for the Dow, and 5th best for The S&P.

Sentiment: It's the start of a new week so once again it's time for the TickerSense Blogger Sentiment Poll.  Starting today we're going to track the poll to see how well it performs.  Here's how things shake out so far:

Week   % Bullish  % Bearish  NightOwl SPX

1/3         46        21        +     1258

1/9         56        37        +     1278

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, we'll run four weeks and see how well we did.  For the record, I voted bullish again this week, on the basis of my reading of the monthly SPX chart as well as on seasonality.

Today we note that while bullish sentiment has increased to 46%, interestingly, bearish sentiment has also increased to 37%. The spread is therefore narrower than last week.

     And the winner is...

All things considered, I'd say the bulls have it.  With Asia closing up strongly and the futures trending up significantly in the overnight, this market gives the impression of wanting to go higher.  So absent any new disasters from Europe (which seems to have mysteriously vanished from the news radar in the past few days) I'm going to say that Tuesday goes higher.

Note too that Rob Hanna's great Quantifiable Edges blog gives a historical statistical edge to our present situation.

ES Fantasy Trader

Portfolio stats: the account remains $100,125 after 2 trades (1 win, 1 loss).

Tonight we go long at 1282.00  

Monday uncertain, pivot is key

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

• Monday uncertain, ES pivot is key.
• ES pivot 1274.42.  Breaking over is bullish..
• Rest of week bias higher technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

One of the possibilities for last Friday that I mentioned was that "any gains will reverse later in the day on week ending profit taking." and that's essentially what happened with the Dow sinking out the gate, then recovering the rest of the morning only to give it all back later to close down a modest 56 points.

The technicals

The Dow: Friday's red candle serves as confirmation to Thursday's long doji.  That said, it looks like we've got another symmetrical triangle forming on the daily chart which should resolve in the next day or two.  And given an entry from below, the exit will most likely be to the upside.

The VIX: The VIX is now flirting with short term support just above 20 but still has a ways to go before hitting its lower BB at 18.93.  And its indicators are not yet in oversold territory.  In fact, the last three days suggest a bearish three black crows pattern.  All of this suggests continued downside risk for the VIX,  If not leading to higher stock prices, I'd expect this at least to put the brakes on any potential market downside.

Market index futures: Right now (2:25 AM EST) all three futures are in the red.  ES is down 0.28%.  However, it has actually been gaining since around 12:35 AM.  After four days of complete indecision we may be getting a break lower tonight.  Inverted hammer, hanging man and two dojis followed by some downside in the overnight all has a bearish feel to it.  The failure of ES to break resistance at 1276 four days running also seems to suggest that we may need to back off and get a running start at it later on.

ES daily pivot: The new pivot has jumped to 1274.42 leaving us now about 3 points under.  Given that ES is actually moving up right now, that puts the pivot in play.  This will be the number to watch before the open.  If ES attacks the pivot and fails to break through, that strengthens the bearish case.

Morningstar Market Fair Value Index: On Friday the index dropped to 0.88.

History: According to The Stock Traders Almanac, Monday is historically negative for the Dow.

     And the winner is...

Another very very tough call tonight.  As I've been writing, ES has continued to gain and is now just a point and a half below the pivot.  Because of a lack of bearish guidance from the VIX and market charts demonstrating more indecision than signs of reversals, and with no new developments out of Europe over the weekend and no major economic news on the calendar for Monday I'm going to guess that Monday may just give us yet another day like we've been seeing the past four sessions.

If ES breaks above the pivot before trading opens, then we definitely could go higher, else lower.  Watch 1274.42.  For the time being anyway, the bias is actually to the upside but I'm not looking for any major moves either way.  That's all, she wrote.

ES Fantasy Trader

Portfolio stats: the account remains $100,125 after 2 trades (1 win, 1 loss).

Tonight we're standing aside.  Once again I see no real reason to put on a trade in either direction until we get out of this ongoing narrow range doji situation.