Friday likely lower

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

• Friday lower, medium confidence.
• ES pivot 1307.08.  Holding above is bullish.
• Next week bias higher technically.
• Monthly outlook: bias up.
• ES Fantasy Trader short at 1310.50.

Recap

It looks to me like we're in "climb the wall of worry" mode, and that's not necessarily a bad thing  Last night I thought we still had a bit more room to advance and that's just what we got on Thursday with a 45 point gain in the Dow.  Can we squeeze one more day out of this rally?  Let's see.

The technicals

The Dow: Today's high of 12,626 brought us almost exactly to the upper BB of 12,644.  This is often a reversal indicator.  In addition, I note that the Dow formed a bullish stochastic crossover from a high level today, something you don't see too often.  When it does happen, it's actually more often a bearish sign than not.  We had three of these last year.  In all three cases, the market was lower within two days.

The VIX:  I thought we'd be seeing a lower VIX today and that's just what happened, with the VIX gapping down to 19.87.  This is significant because it's the first sub-20 close we've had since last July 25th.  That said, the VIX also touched its lower BB today.  The VIX is very good about respecting this level and generally starts back up again within a day or two, and that's bad for stocks.

Market index futures: Once again, the futures are running higher, but just a bit.  ES is up a scant 0.02% at 1:25 AM EST.  However, the trend had been up since 10:30 PM.  Two good solid green candles in a row plus a second close above 1300 are good signs.

ES daily pivot: Rose from 1297.67 to 1307.08 tonight.  But this evening's trend actually puts us further from the new pivot than we were before,a bullish sign.

Dollar index: The dollar continued lower today but on a gap down doji that took it exactly to the bottom of its recent rising RTC back to last November.  This at least suggests the possibility of a reversal on Friday which would be bad for stocks.

Copper: Continued to climb its upper bB today and is starting to look a bit overextended, with indicators looking quite overbought.  I'd not be surprised to see a decline here in a day or two.

Morningstar Market Fair Value Index: Yesterday the index rose for the second time in a row to 0.93, something that hasn't happened since September 1st, 2010.  Recall that then, the market had just come off a bottom three days earlier and then went off to a two and a half month rally.

History: According to The Stock Traders Almanac, tomorrow, options expiration day, is down big time 10 of the last 13 years.

     And the winner is...

The feeling I'm getting is that we're overdue for a pullback of at least a day or two and Friday is when it just might happen.  So although the futures are not guiding lower at the moment, I note that J-Trader is going short and I agree.  So I'll call for a lower close Friday.  And if we don't go lower tomorrow, I expect lower on Monday even more.

ES Fantasy Trader

After spending the past several days just watching, tonight we go short at 1310.50.

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

 

Thursday maybe a bit higher

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

• Thursday higher, low confidence.
• ES pivot 1297.67.  Holding above is bullish.
• Friday bias higher technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Of note


You may know I've been following the saga of the decline and fall of Kodak since last fall in my regularly updated post here.  Well, we just learned that, to the complete surprise of absolutely no one, Kodak has finally, at long last gone bankrupt, having just filed Chapter 11.  It is the end of an era and the end of an icon.  My sympathies go out to all the employees and retirees who will be hurt by this action.

Recap

Last night I published at 8 PM as a gesture of sympathy with the Stop SOPA movement.  And it was a perfect example of why I usually post around 2 AM instead.  At 8 PM it looked to me like we were going lower today.  Instead, the Dow gained an impressive 97 points.  Is there any more where that came from?  Let's take a look.

The technicals

The Dow: The big thing about today's action was that we finally managed to close above the 12,500 resistance level that has dogged us for over a week now.  The next resistance is the upper BB at 12,674, then last summer's highs around 12,725, and finally last year's high at 12,876.  For the time being, today's solid green candle invalidates yesterday's inverted hammer and the preceding hanging man.

The VIX:  Last night's solid green candle sure looked like it would run the VIX higher today and it did - at first.  After a big gap-up opening, it dribbled back down to actually end lower by 5.9%.  That formed a  very negative looking dark cloud cover that takes the upward wind right out of the sails of the VIX for Thursday.

Market index futures: Aside from a mysterious spike around 9:45 PM this evening, the futures have been fairly quiet and are essentially flat at 1:45 AM EST.   The indicators are all broken in overbought mode so no guidance there.  There's no candlestick reversal signs on this chart but the upper BB at 1310.68 represents the next resistance.  Today's close above 1300 is a promising sign.

ES daily pivot: Moved up from 1291.00 to 1297.67.  With ES at 1302.50 at 1:40 AM EST, we're in good shape as long as ES doesn't break under that level.

Dollar index: Gapped down today with all its indicators in decline, pointing the way for lower still on Thursday, also good for stocks.

Copper: Broke out over resistance yesterday and continued higher today.  It is now climbing its upper BB on the daily chart.  No reversal sign here, another positive sign for stocks.

     And the winner is...

Tonight, I'm giving it to the bulls.  Not so much because I see any roaring signs of upward pressure as because I don't see any signs of downward pressure.  Even though a lot of indicators are overbought, we still have some room to run before encountering more resistance.  So on that basis, I'll call for Thursday at least a bit higher, though I'd be surprised if we run up as much as we did today.

And because we're so close to the ES pivot, if we should break convincingly below that before the open on Thursday, then all bets are off.

ES Fantasy Trader

Because I'm not expecting a significant move in the overnight, I'm going to take the conservative route and stand aside once again. One of the luxuries we have as traders compared to blackjack players in Vegas is that we don't have to play every hand.  It's OK to just sit at the table and watch without worrying about some surly pit boss coming around to chase you away.

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

 

Wednesday looking lower

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

• Wednesday lower, medium confidence..
• ES pivot unavailable - SOPA blackout...
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

Last night I called for today to go higher and we in fact got a 60 point gain in the Dow.  Tonight, we're posting early because I am going to join the SOPA blackout (after a fashion) and not publish on Wednesday.  If you haven't heard about this issue yet, check it out here.

The technicals

The Dow: I'm a bit concerned about the shape of today's action - an inverted hammer that was unable to break the12,500 resistance level that has been stopping us for five straight sessions now.  We are now at the top of this rage with not much momentum seemingly available to push higher.

The VIX:  Took a 6% jump today out of oversold territory on a solid green candle that portends higher once again, a bearish sign for stocks.


Market index futures: Right now, it's still very early at 8:40 PM Tuesday night.  However, all three futures are running just barely in the green.  The trend though, going back to about noon today, is lower.

ES daily pivot: Unavailable tonight since I'm writing this before midnight.

Morningstar Market Fair Value Index: Today the index took a big drop from 0.90 to 0.87, a bearish sign.

History: According to The Stock Traders Almanac, this whole week is historically pretty bad.  Wednesday "has been down big 9 of the last 13".

Sentiment: It's the start of a new week so once again it's time for the TickerSense Blogger Sentiment Poll.  We continue to track the poll to see how well it performs.  Here's how things stack up so far this year:

Week   % Bullish  % Bearish  NightOwl SPX

1/3         46        21        +     1258

1/9         56        37        +     1278

1/17        41        33        +     1289

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'll be able to see how well we did.  For the record, I voted bullish yet again this week, mainly on the basis of my reading of the monthly SPX chart as well as on seasonality.

Today we note that both bullish and bearish sentiment have declined since last week.  .But bullish sentiment declined more and in fact is now at its lowest level of the still young year.   That alone could be considered a contrarian bullish indicator.  Going by the bull-bear spread though, not so much.  With just an 8 point gap between the two, there's not much predictive power there.

     And the winner is...

A tough one but given the bulk of evidence I'm going to say lower on Wednesday.  I'm just not feeling the love.

ES Fantasy Trader

Once again we're standing aside in solidarity with the SOPA blackout.



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

Tuesday higher

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

• Tuesday higher, high confidence..
• ES pivot 1285.58.  Holding over is bullish..
• Rest of week bias uncertain pending Tuesday's action.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

No trading today so nothign to recap.  Nonetheless, I find the action in the futures interesting.  Read on.

The technicals

The Dow: With no trading today, I will simply reiterate what I said last night: with now three hanging men in a row, and the last being the largest of the three, I'd say the Dow is trying to tell us something here.  This is not a good sign.

Market index futures: Oddly enough, while the Dow chart is looking ready to roll over, the futures are looking quite strong indeed tonight.  Unlike last night, all three are solidly in the green.  ES is up three quarters of a percent at 1:25 AM EST and NQ is up nearly a full percent.  This is quite unusual for this time of night and the last time we saw such numbers, the following day was up strongly.

With ES now at 1299, we've finally broken above the 1290-1295 resistance level that plagued us last week.  From here, there's just psychological resistance at 1300, then the upper BB at 1313.


ES daily pivot: Dropped from 1290.00 to 1285.58.  But even before that, ES crossed over around 11 PM and never looked back, another good sign..

History: According to The Stock Traders Almanac, historically, the Dow is up 14 of the last 19 on the first day of options expiration week in January.

     And the winner is...

I'm going to completely reverse my opinion from last night and now claim that Tuesday is going higher.  Apparently, today the S&P ratings downgrades didn't bother the Europeans, so I guess the theory is that it isn't going to bother us.  It's always a challenge to call the direction of the market after three days off, but this one is looking pretty good.

ES Fantasy Trader

It's not even 2 AM yet but we've already had quite a run up in ES.  I'm getting the feeling that the overnight window of opportunity has already closed so we're standing aside again tonight.


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

Tuesday looking lower

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

• Tuesday lower, medium confidence..
• ES pivot 1285.58.  Holding under is bearish..
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

Last Thursday night I was expecting a turn in the market but I didn't think it would happen on Friday.  Well, it did, in the form of a minor 49 point drop in the Dow.  We're coming up on yet another holiday-shortened week, but it's still worth taking a look at where we might be going on Tuesday.  Here's a quick look with more detail to follow tomorrow.

The technicals

The Dow: Of greater significance than the small decline was the hanging man the Dow put in.  That makes now three hanging men in a row, and the largest of the three.  I'd say the Dow is trying to tell us something here, if you know what I mean.


Market index futures: The stock market may be closed Monday but futures trading resumed Sunday evening and right now at 2:10 AM EST all of the big three are down.  ES is off nearly half a percent after a gap down opening.  With a three day pattern of small hanging man, doji, big hanging man, ES looks ready to move lower still.

ES daily pivot: Moved down from 1290.00 to 1285.58.  However, ES is still trading below that, at 1283.00.  Unless it can break above this level, that only strengthens the bear case.


     And the winner is...

Right now, I'd have to say it's looking like there's more downside risk than upside potential.  Asia was down in their regular hours today and the repercussions of the S&P European ratings downgrades last week may not yet be fully baked into our market.  We'll have a clearer picture tomorrow evening, but at the moment I'm leaning to a lower close on Tuesday.

ES Fantasy Trader

Because of the  typical holiday-induced distortions, we're standing aside again tonight.

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