Friday maybe higher unless ES pivot lost

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

• Friday uncertain, higher if pivot holds.
• ES pivot 1361.83.  Breaking under is bearish..
• Next week bias up technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

It's always gratifying to call the market correctly.  Last night the call was "Thursday higher unless bad Greek news".  Well the news was good and the market went higher.  End of story.  But what of Friday?  Read on for the exciting conclusion...

The technicals

The Dow: Today's 71 point gain almost completely retraced Tuesday's big dump.  From a candlestick point of view, we now have two thirds of a "three white soldiers" pattern.  If we can get another soldier to join the troops on Friday, that will be bullish indeed.  With rising indicators and a stochastic just barely finishing a bullish crossover, that's looking more than a bit likely.

The VIX:  I was also right about the VIX when I wrote "lower VIX Thursday".  We got a big gap-down star to end off 5.87% at 17.95.  With a stochastic just completing a bearish crossover and other indicators headed south, I'd say another down day isn't out of the question.

Market index futures: Just as I began writing this, all three futures were up slightly.  Then suddenly right at 1 AM, ES took a four point dive in less than five minutes.  And this was on huge volume (for this time of night) - 1100 contracts traded at 1:02 AM alone.  The only reason I can see is that this was when the results of the Greek bond swap were announced..  In any case, as of 1:09AM EST, ES is now down 0.11% having found support (so far) at 1364.50.

What's puzzling is that the Greek numbers were actually quite good - 85.8%.  Maybe this was just a "sell the news" reaction.  But CNBC already broadcast the 85% number this afternoon.  Or it could be a reaction like you sometimes see on Fed days when the market takes off in the direction opposite what you'd expect, only to reverse course a few minutes later.  Very odd.

As far as today's action went, it was pretty much the same story as the Dow, but even better, with ES recovering all of Tuesday's losses and a bit more.

ES daily pivot: Tonight the pivot jumped from 1349.42 to 1361.83.  Even with the 1 AM dip and the rise in the pivot, we still remain above it, albeit by only three points.  This now puts the pivot in play.  We really don't want to see ES break under the pivot.

Dollar index: You don't really need to look much beyond what I wrote late night: "dollar lower Thursday -> stocks higher."  It did, and they did.  Today gave us a big gap-down red candle for a 0.73% loss.  But with indicators still just coming off overbought, no recent support in sight, and the stochastic just finishing a bearish crossover, look for lower still on Friday.

Morningstar Market Fair Value Index: Yesterday the index ticked up to 0.94, a positive sign.


History: According to The Stock Traders Almanac, Friday is historically slightly bullish.

     And the winner is...

In closing, I note that the $TRAN transportation average today traded outside its recent declining RTC, posting a 1.42% gain.  Since this pretty much declares the downtrend over, this is quite a bullish development indeed.  In addition, the $RUT Russell 2000 average also traded outside its declining RTC today, a bullish setup.  And finally copper also took a positive turn today, making a bullish stochastic crossover.  There may well be gloom & doom on the horizon, but these three technical bellwethers are not showing it.

ES, 5 minute bars

Despite all this, I'm quite concerned about the sudden turn south in ES which is continuing to move lower as I write.  There's something funny going on here.  Given this odd turn of events, I don't feel good about calling the market higher, which I'd been getting ready to do.  On the other hand, unless ES continues below the pivot, it's not guaranteed we're going to close lower Friday.  So the best I can say tonight is Friday morning watch the ES 1361.83 level and the Dow pivot at 12,816.  Going decisively under either of these will be bad.  Otherwise, we stand a good chance to close higher Friday.


1:30 AM Update: ES seems to be recovering from its 1 AM hiccup, now at 1364.75.  Just look at this strange chart.  The fact that we hit 1363.25 (finding support at Thursday afternoon's lows) and then started recovering is encouraging and makes me a bit more confident that we might close higher Friday.  We'll just have to wait and see.

ES Fantasy Trader

My bet last night on a euro-driven rally paid off nicely today in the form of a decent 10.5 point gain.  Not bad for just under 11 hours work, eh?  Tonight we stand aside in view of the funny business going on with ES right now..

So the account now rises to $114,750 after 19 trades (14 wins, 5 losses) starting from $100,000 on 1/1.

SLD    10    ES    false    MAR12 Futures     1365.25    USD    GLOBEX    12:54:21   

BOT    10    ES    false    MAR12 Futures     1354.75    USD    GLOBEX    02:04:25   

 

Thursday higher unless bad Greek news

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

• Thursday higher, low confidence.
• ES pivot 1349.42.  Holding above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes long at 1354.75.

Recap

Last night I was expecting the market to go higher today, which it did, though admittedly a bit more than I thought.  But hey, I'll take it (and did).  Now let's try to figure out if we can recover some more ground Thursday.

The technicals

The Dow: I'd say today's 78 point advance in the Dow was a bit more than a dead cat bounce.  More like only a mildly injured bounce.  And volume on today's gain was higher than on yesterday's dump with both OBV and momentum suddenly turning positive.  This really isn't the look of a chart ready to go lower.

The VIX:  Today the VIX completed a near-textbook evening star, dropping 8.6%.  With indicators now solidly overbought, it looks like a lower VIX Thursday, implying higher stocks.

Market index futures: At 1:57 AM EST all three futures are up but just barely.  ES is up just 0.07% after a solid green candle that retraced almost exactly half of yesterday's losses.  That's definitely more than just a dead cat bounce.  Just the fact that we're not going lower at this late hour seems to suggest an absence of selling pressure.

ES daily pivot: Tonight the index nudged up from 1348.75 to 1349.42.  But thanks to a lift this evening, we're now even higher above the new number than before.  Unless we break under the pivot, things are looking good.

Dollar index: Last night I wrote of the dollar, " we're more likely to see it go lower in the next day or two".  And sure enough, it dropped 0.2% today leaving indicators hooking down from overbought levels and a stochastic just ever so close to making a bearish crossover.  Conclusion: dollar lower Thursday -> stocks higher.

Morningstar Market Fair Value Index: As expected, yesterday the index took a dump to 0.93.  But I wouldn't read too much into that.  Sudden large movements in the market tend to distort all sorts of indicators, so let's let the dust settle a bit before we try to make something of this.


History: According to The Stock Traders Almanac, Thursday is bearish, the weakest day of the week..

     And the winner is...

Thursday's going to depend greatly on, once again, news about Greece.  Technically, I'm seeing more positives tonight than negatives, so on that basis alone I'll call for a higher close Thursday, but keep in mind that it will take just one story in the FT that Mr. Market doesn't like and down we'll go.

ES Fantasy Trader

Tonight I'm taking on a somewhat speculative long position, betting that the people driving the euro higher at 2 AM know something I don't.  So we're in at 1354.75.

Meantime, the account remains $109,500 after 18 trades (13 wins, 5 losses) starting from $100,000 on 1/1.
 

Wednesday small gain possible

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

• Wednesday higher, low confidence.
• ES pivot 1348.75  Breaking above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

Well so much for the rubber duckie I spoke of last night.  Today out of nowhere emerged a Greek submarine to torpedo the poor guy sending him down 204 points, the Dow's biggest loss since last November.  Every single stock on my watchlist of over 150 names was red today.  At least my call "Tuesday could go lower" was correct, if somewhat of an understatement.

Those freakin' Greeks.  Just when you thought it was safe to go back in the market, here we go again.  Would you please just go bankrupt and get it over with so we can all get on with our lives?  It's really absurd - for four months now Greece simply disappeared off the radar, now all of a sudden, like some horror flick, they're baaack...

At least they finally got the Dow out of its recent trading range - too bad it was to the downside.  Now let's see where we go from here.

And a quick note in passing - I got so involved I completely overlooked the fact that the Night Owl Trader had its second anniversary last month, on February 17th.  I look forward to many more and thank all my readers for coming along for the ride.

The technicals

The Dow: After just meandering aimlessly for ten straight days, the Dow finally broke to the downside today, with a giant red candle that took us clear to the lower BB in one fell swoop.  The RSI also went oversold.  Interestingly though, volume was not particularly high, as you might expect in a drop of this magnitude.  This indicates a lack of panic and makes me question if this decline wasn't just a one day wonder.

VIX daily

The VIX:  And would you just take a look at the VIX today!  This is the chart du jour.  We haven't seen a pop like thsi since last November 1st, up 15.62% on a huge gap-up star.  As I've noted here often, the VIX rarely spends more than one day, (or occasionally two) at its upper BB without going lower.  Note also how the RSI has now moved to overbought (red bar below).

I'd say this chart is much more likely to go lower than higher on Wednesday, which would be good for stocks.  And if it does go lower, then that makes an evening star, which should be good for still lower later.

Market index futures: Whenever you see a big dump on a chart like this, the first thing you think of is "dead cat bounce".  This is especially true when the VIX isn't at crazy levels in the 30's or higher.  And the overnight futures seem to be suggesting that might just be a possibility, with all three up at 1:26 AM EST.  ES is up 0.28%.  Recall last summer when we'd have a terrible down day, it wasn't unusual to see the overnight ES simply continue lower.  We're not seeing that right now.

In addition, today's fall brought us nearly to the lower BB at 1335.90 and brought all the indicators very near to oversold.

ES daily pivot: Tonight, the pivot drops all the way  from 1364.00 to 1348.75.  This brings us within easy striking distance, with ES just three points under that now.  This is going to be one of those times when the pivot is, uh, pivotal.  If we run up to it and bounce off, that's bad.  If ES can break through decisively, that's good.  That will set the tone for the day.

Dollar index: Like the other charts, the dollar today made a big move, in this case gapping up like the VIX to its upper BB and dragging its indicators into overbought territory.  And like the VIX, the dollar has been reluctant to spend much time in the company of its upper BB lately.  I'd say we're more likely to see it go lower in the next day or two than continue higher.

Morningstar Market Fair Value Index: Yesterday the index went right back to 0.96, though I imagine that today's number is going to show a drop.  Looking at the longer view of this chart, I'm finding the failure of the index to climb back to 1.0 after spending time in the 0.8's to be worrisome.  Not good for the bullish case.


History: According to The Stock Traders Almanac, Wednesday is historically just slightly bullish.

     And the winner is...

Tonight, I'm going to go with the dead-cat bounce theory.  The follow-up to big declines is usually small.  Right now the futures seem to be suggesting a move upward, and idea supported by the dramatic move in the VIX.  We've gone from a market just waiting to roll over to an overdone one day sell-off.  The behavior of ES relative to the pivot around the opening will be important.  My best guess is that we'll see a positive close Wednesday.  While I do think there may be more downside to come, as we are now in a new downtrend, it won't necessarily come on Wednesday.

And of course I apparently once again need to throw in the caveat I used so often last summer, that any bad news out of Europe can change this all in an instant.  We're back to the news-driven market, folks.

ES Fantasy Trader

Wow, I'm sure glad I listened to my Owl intuition last night.  That short paid off nicely, realizing 16 points.  Because of the uncertainty surrounding follow-ups to big down moves, we're just going to stand aside again tonight.  Sometimes the best trade is no trade.

The account is now $109,500 after 18 trades (13 wins, 5 losses) starting from $100,000 on 1/1.

BOT    10    ES    false    MAR12 Futures     1344.25    USD    GLOBEX    11:38:12    

SLD    10    ES    false    MAR12 Futures     1360.25    USD    GLOBEX    01:41:46

 

Tuesday could go lower

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

• Tuesday lower, low confidence.
• ES pivot 1364.00.  Holding below is bearish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes short at 1360.25.

Recap

Unsinkable?

Today, for the tenth straight day we remained stuck in the 12,950-13,000 range in the Dow with just a 15 point loss on the day.  This is what I call a "rubber duckie" market.  You try to push him underwater in the tub, but he just bounces right back up to the surface.  On the other hand, then he just sits there - he can't fly up into the air.  What will it take to get us off of top-dead-center?  Read on...

The technicals

The Dow: Today the Dow gave us a hammer/hanging man type doji.  Without a trend, it's impossible to tell which.  About all I can gather from this chart is that there's more of the same on the way.  The only item of interest here is that the stochastic is exactly on the cusp of forming a bullish crossover.  This pattern does not look bearish, but it requires confirmation before declaring it bullish.  So we remain stuck in neutral here.

The VIX:  We saw a gap-up inverted hammer in the VIX today giving us a 4.4% gain.  But that's not the sort of candle that would lead you to expect follow-through.  Still, it did bring us out of the descending RTC breaking a five day downtrend.  My guess here is that while the VIX may not go higher on Tuesday, it very well might in another day or two.

Market index futures: At 1:28 AM EST we're seeing all three futures in the red with ES losing 0.27%.  Assuming it doesn't manage to recover, that will put ES in a new downtrend.  And importantly, the overnight action takes ES out of its rising RTC back to 2/1.  Assuming we don't recover on Tuesday, that will be a bearish trigger.  Interestingly, we're seeing some divergence here between ES (and the SPX) and the Dow.  The latter remains range-bound.  My theory is that we're starting to see a flight from risk to the dividend paying large caps.  This could be a signal that the downturn is at hand.

ES daily pivot: Tonight the pivot drops from 1370.25 to 1364.00.  Despite this, ES, which spent the day under the pivot, remains below that.  Unless ES can stage a meaningful attack on the pivot by mid-morning Friday, it's not looking good.

Dollar index: Last night I thought the dollar would be going lower soon and today it did, just a bit, hesitating on a doji down 0.12%.  It looks ready to go lower still, which would help out stocks.

Morningstar Market Fair Value Index: Well MS seems to have decided that the index remains at 0.96 after all.  We'll see what tomorrow brings.


History: According to The Stock Traders Almanac, Tuesday is historically just slightly bearish.

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 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  

  8  2/21       44         32        +     1361

  9  2/27       48         24        +     1366

 10  3/5        43         26        +     1370

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 2/6 was correct, the S&P now being higher than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 6 for 6.  And of course that means that since I voted with the majority back then, the poll as a whole was also correct that week.  The Ticker Sense bloggers continue to bat 1000.

It's worth noting that this week we actually saw both a decline in bullish sentiment and an increase in bearish sentiment - not the sort of thing you want if you're looking for a contrarian top sign.  The most interesting point here is that bullish sentiment is now at its lowest point so far this year.  If you believe that the Ticker Sense crowd is pretty good, then that might be an indication that the rally is nearing its end.  Nevertheless, I voted bullish once again.  Much as I'm thinking this rally is getting long in the tooth, I still don't see a reversal coming on the SPX monthly chart.

     And the winner is...

Well, once again, I'm not feeling any strong sentiment either up or down.  There are some bullish signals in the charts, but also some bearish ones, and those seem to be getting stronger.  The rubber duckie may be about to spring a leak.  So I'm afraid tonight I'm going to have to side with the bears and call for a lower close Tuesday.  But I'm still not particularly confident about that and I'm definitely not looking for a major collapse on Tuesday.

ES Fantasy Trader

I don't know - my Owl intuition is giving me the feeling that a short might work out here, so tonight we go short at 1360.25.

The account remains at $101,500 after 17 trades (12 wins, 5 losses) starting from $100,000 on 1/1.
 

Monday uncertain, maybe lower

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

• Monday lower, low confidence.
• ES pivot 1370.25.  Holding below is bearish.
• Rest of week bias higher technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

Now I know why last Thursday I couldn't decide on a market direction for Friday - the market couldn't either, with all three major averages finishing within a few points of unchanged.  This now makes six straight sessions the Dow has traded in a narrow range of 12,950-13,000.

The technicals

The Dow: On Friday, the Dow created a Christian doji, but really the candlesticks haven't been of much use to us all year so far.  The Dow continues its lazy stairstep advance.  And although Friday finished essentially unchanged, the stochastic has now declined to the same area from which we've seen the next step up all year long.  The daily upper BB is now at 13,043, suggesting we might manage another 50 points higher without too much trouble, assuming we can cross the 13K Rubicon and stay on the other side.

The VIX:  The VIX actually gained 0.17% on Friday, but this number is deceptive, since it did it on a solid red candle.  While this creates some level of support around 17.25, the VIX remains solidly in a five day descending RTC.  Its stochastic also formed a bearish crossover Friday suggesting lower to come, and that would be good for stocks.

Market index futures: At 12:55 AM EST all three futures are running lower, with ES down a non-trivial 0.31%.  The current level of 1364.50 puts us right on the edge of the rising RTC.  Trading under this on Monday would be a bearish setup.  And on the hourly chart we see that ES is continuing in a downtrend that began at 7 PM on March 1st, almost a week ago. 

ES daily pivot: Tonight the pivot moved a bit from 1369.50 to 1370.25.  And with ES continuing lower in the overnight, we're now six points under the new number.  That does not bode well for Monday.

Dollar index: On Friday the dollar took a big gap up to close a substantial 0.8% higher.  Although still short of its upper BB, this gap is looking to me like its just begging to be filled.  With indicators not quite overbought yet, another day of gains isn't out of the question,, but I'd say the dollar is going to be headed lower by mid-week at the latest, also good for stocks.  This is particularly so in view of the fact that the euro looks ready to rise.

Morningstar Market Fair Value Index: Last Thursday, MS was advertising this number at 0.92.  Now, they're saying it was 0.97.  Unless we can get some reliable data from these guys, I'm going to have to drop this as a daily indicator.


History: According to The Stock Traders Almanac, Monday is historically bullish.

     And the winner is...

Yet another night of conflicting signals.  While some of the charts don't look too bad at the moment, I'm concerned about ES, which is not just down, but trending lower.  I'm also concerned about the recent reversal in the price of oil.  While sky-high oil prices are clearly not good for our economy, I note that the last few times when oil has suddenly turned lower, the market also did, either simultaneously or soon after.

However, given the continuing upward momentum so far this year, I still hesitate to call a reversal until I see some confirmation.  And I still don't see that.  So until then, the best I can do is call for some more range-bound trading, with the Dow bouncing around between 12,950 and 13,000.  Right now, I see no compelling indications that we're breaking out either higher or lower.

If I absolutely had to make a wild guess right now, I'd say that Monday might close lower, but I don't have a lot of confidence in that.  If ES can break 1366.50 Monday morning, that increases the odds of a higher close.  That would take ES out of the descending hourly RTC.  But if ES can't recapture the pivot before noon, the odds for a lower close increase greatly.

Watch those two key ES numbers: 1366.50 and 1370.25.  That's about the best I can do from my late-nite perch this time.

ES Fantasy Trader

Faced with another night of uncertainty and no discernible edge, we stand aside once again.

The account remains at $101,500 after 17 trades (12 wins, 5 losses) starting from $100,000 on 1/1.