Is the Top In?

Strange Times

In all the eight years I've been watching the markets full time, I've never seen a situation of the sort that's unfolding right now.  As of Thursday's close in front of a long holiday weekend, we weren't in bad shape.  The Dow closed down just 14.61 points, the SPX was basically flat, and the Nasdaq actually gained 0.4%.  There was no indication, technically at least, that things were about to turn south.  Then on Friday, a holiday, a day when stock trading was closed, the government released employment numbers - and they missed by a mile.

Now the stock market may have been closed, but the market futures were open apparently (I didn't even know about this) from 8:30 AM to 9:15 AM.  And in that brief time, they fell off a cliff, with ES dropping from 1392.50 to 1372, "recovering" to 1375 in the final minute.  I don't know who made money off this, but I sure wasn't one of them.

This move was the worst since March 6th, when ES lost 21.75 points.  And what happened the next day?  It retraced almost exactly half of that loss, and more than completely retraced it the next day.  But there's a big difference between yesterday and March 6th.  Back in March, that big dump took us right to the bottom of an ascending regression trend channel.  This time a big drop on Wednesday already took us to that spot.  Then Thursday traded outside the RTC which is a bearish setup.  And then boom, on Friday ES traded straight down from there - the bearish trigger.

But but but.  That was based on just 45 minutes of trading.  It's very dangerous to compare a daily candle to what amounts to less than a one hour candle.  And after four days of declines, ES is now quite oversold.

And it gets weirder.  On Friday eSignal posted a trade at 12:25 PM for one ES contract at 1390.25 which left ES exactly unchanged for the session.  ANd the same thing happened to both NQ and YM.  Now that's really weird.  Did some algo go haywire and place this trade by mistake?  On all three futures?  Is someone willing to risk a 21 point loss by manipulating the charts and turning a long red candle into a doji?  Or did eSignal screw up?  The same way on all three charts?  Lot's of questions, not many answers.  I'm still waiting to hear from eSignal.  FWIW, my broker's charts show ES closing at 1375.00 on Friday (which sounds more believable to me).

Is the Top In?

So that leaves us with the big question.  Have we seen the top?  Is 2012 going to be a rerun of 2011 where first quarter gains evaporated in the second quarter?  Is it going to be "sell in May and go away" or maybe, the way it's looking right now "had you fill, sell in April".

SPX Monthly

Well, I've got to say, that after the first week in April, the picture of the monthly SPX chart has changed considerably.  And here it is.  This is one of the main things I look at every week to make my vote in the Ticker Sense Blogger Poll.  And right now it's looking ready to roll over.  These are one month bars going back to mid-2009.  Note the eerie similarity of the current setup to where we were last year at the same time.

The RSI is quite overbought (I accidentally labeled it "RTC" in this chart).  Also look at the stochastic and how well it corresponds to both tops and bottoms.  The last two bullish crossovers there led to multi-month rallies.  And the last bearish crossover was in March, 2011, one month before the top last year.  The stochastic is now getting ready to form another bearish crossover.  And the candle itself that was looking good a week ago is now looking like a dark cloud cover which is quite an ominous bearish reversal warning.

So, bottom line is yes, I think it's time to start taking some profits and moving into cash, or at least doing some hedging with SDS, DXD or the like.  And I am going to switch my vote in the Ticker Sense poll from bullish to bearish for the first time this year in the poll coming out Monday.  I suspect we'll see a big jump in bearish sentiment then.  We'll get a better indicator of which way the market may move Monday when futures trading resumes tomorrow evening, but in the meantime, it's not looking good for Monday morning, and the bad part is that if you're not already short, I don't see any way to get in on it.  We may simply open down big time.  Should be an interesting day.

Thursday higher if pivot crossed

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

• Thursday higher, medium confidence.
• ES pivot 1396.92.  Breaking over is bullish.
• Next week bias uncertain, technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes long at 1397.00.

Recap

Last night I wrote that I wasn't feeling the love and the Dow responded by barfing up 125 points in a truly ugly session.  The obvious question now, is was this just a one-off like the last big dump we saw on March 6th, or a harbinger of things to come.  The answer, my friend, is blowing in the charts.

The technicals

The Dow: The only good thing about today's big red candle is that it respected the 13K support line.  That, and the fact that it retraced enough to almost make it back into the 13,100-13,250 range we've been stuck in recently.  The bad news is that even losing 125 points today, the indicators are still only about halfway to oversold.  The stochastic in particular is just finishing its bearish crossover, and that's never a good thing.

The VIX:  What I like is that sometimes when the Dow chart has a measure of ambiguity, the VIX often comes to the rescue.  Such is the case tonight.  While the VIX did gap up big time today, gaining 5%, it did it on a red candle.  But most importantly, it poked through the upper BB at 17.18  intraday.  As I've often noted here, the VIX very rarely continues to climb after hitting its upper BB.  In fact it usually goes back down within a day or two at the most.  And the RSI is now at 95, which is more overbought than any time since last July.  This all suggest a a VIX ready to go lower, which would be good for stocks.

Market index futures: Tonight, we've got the futures all trading higher, with ES up 0.25% at 1:56 AM EDT.  And today's big red candle was enough to move this chart to oversold levels, at least on the RSI.  OBV has also hooked up, a good sign of a reversal.  Money flow has also come way down to levels from which reversals have occurred recently.  So while I don't think this chart is ready to take off, it does look like some support has kicked in.

ES daily pivot: Tonight the pivot drops from 1407.50  to 1396.92.  Since ES has been slowly drifting higher since about 10:30 this evening, we are now just touching the new pivot.  Breaking above this and staying there will be crucial to a positive close on Thursday.

Dollar index: The dollar today jumped 0.39% but put in a very toppy looking evening star (well the first 2/3 of one at least).  It was also stymied by resistance at 55.50 (remember, I'm using $USDUPX, not $DXY).  Anyway, this chart looks ready to move lower Thursday, which would be good for stocks.

Transportation: Today the $TRAN put in a hammer coupled with mixed indicators.  The RSI while still overbought, has peaked and turned lower.  OBV is now at its lowest level since the December lows.  But the stochastic continues to rise.  Perhaps the best tell is the RTC that shows we are still in a rising trend, though just barely.  In any case, this chart definitely does not look like one on the verge of a nervous breakdown.


History: According to The Stock Traders Almanac, this whole week is historically quite bullish.  In fact, April is number one ranked month of the entire year for the Dow, though you'd never know it so far.

Accuracy: Reminder - this is where I track how well my daily market close calls did.  Calls are based on the close of the Dow.

Month right  wrong

April   2      1

     And the winner is...

It's always tough calling a holiday shortened week, especially on the day before the holiday.  No doubt many of the big boys will be taking Thursday off, but oh no, not me.  I'm not smart enough for that.  Anyway, while I'm still not exactly feeling the love tonight, let's say I am feeling something of a casual friendship.  Given that the VIX and the dollar are both looking ready to reverse, and that they both called the last reversal correctly, and that people may realize that the world is not coming to an end, and that big one day dumps have tended this year not to be followed by a second day of big losses, I'm going to call for a higher close Thursday.  It may be more of a dead cat bounce than a real rally, but I do think the downside is limited from here.  That's all she wrote!

ES Fantasy Trader

Last night's short worked out well with a handy 12 point gain.  Thanks, Mr. Market!

Portfolio stats:  The account now rises to $137,750, after 28 trades (22 wins, 6 losses) starting from $100,000 on 1/1  Tonight we go long at 1397.00 at 1:48 AM EDT.

BOT    10    ES    false    JUN12 Futures     1391.00    USD    GLOBEX    11:15:40   

SLD    10    ES    false    JUN12 Futures     1403.00    USD    GLOBEX    01:33:23   

Wednesday lower

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

• Wednesday lower, medium confidence.
• ES pivot 1407.50.  Holding under is bearish.
• Rest of week bias uncertain, technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes short at 1403.00.

Recap

Hmm - I wasn't really expecting a big gain today, but I sure wasn't expecting the FOMC minutes to torpedo the market.  In fact, I didn't even think it a topic worth mentioning last night.  Anyway, that made short work of my call for a higher close.  This is just one of those things that TA can't anticipate, like an earthquake in Japan.  At least the Dow managed to retrace the worst of it, to end down just 65 points.  Still, this development sort of has to make you wonder.  So let's hunt for some clues to Wednesday.

The technicals

The Dow: I've been talking about this Dow 13,100-13,250 range for a while now and today's close at 13,199.55 left us stuck inside there once again.  Yesterday's close just barely above that proved unsustainable.  And today's action gave us a hanging man in a bearish position relative to yesterday's fat star.  In addition, although there's no action from the stochastic, I note that OBV has turned south and money flow is continuing a slow but steady decline.  Those are all bad signs.

The VIX:  Like the Dow, the VIX is stuck in a groove called 15.50.  Today marked six straight sessions that we closed very close to that level, this time with a gravestone doji.  With action like this, it's very hard to say which way the VIX is going to go, since it doesn't seem to know itself.  The action in the futures seems to suggest the VIX may go higher on Wednesday though, so that would be bad for stocks.

Market index futures: Tonight the futures are running in the red by non-trivial amounts, with ES down 0.43% at 1:29 AM EDT.  This already gives us an ugly solid red candle longer than the body of today's hanging man.  Worse, it takes us outside the rising RTC for a bearish setup and the stochastic is forming a bearish crossover.  And meanwhile, ES continues a slow downward drift as I write.  Whereas last night this chart didn't look bad at all, tonight it's looking rather concerning.

ES daily pivot: Tonight the pivot steps down from 1409.75 to 1407.50.  We were below since 11 AM, and we're still below - not a good sign.  But it's now just a four point gap, so the pivot will bear watching Wednesday morning.  Failure to break over that number is bearish.

Dollar index: The dollar took a pop today that pushed it out of its descending RTC for a bullish setup.  Add in rising indicators and I would not be surprised to see the buck continue to strengthen Wednesday, and that would be bad for stocks.

Transportation: Today the $TRAN pretty much mirrored the Dow, giving us a hanging man that remains inside a rising RTC.  The indicators are a bit mixed, with the RTC showing overbought but OBV showing oversold.  The stochastic though does not suggest a top here yet.


History: According to The Stock Traders Almanac, this whole week is historically quite bullish.  In fact, April is number one ranked month of the entire year for the Dow.

Accuracy: Beginning with this new quarter, by popular reader request, I am going to start tracking the accuracy of my market calls every day.  I will count a prediction as correct if the Dow closes in the direction I called, no matter what the point value is.  So here we go:

Month right  wrong

April   1      1

     And the winner is...

Hmm, there's bad news crossing the wires about Australian trade deficits and Chinese growth, and some renewed rumblings about various issues in Europe.  I know that this week and whole month are supposed to be quite strong historically, but past results don't guarantee future results, as they say.  And right now, the charts seem to be taking a turn for the worse.  All of a sudden I'm not feeling the love, so I'm calling Wednesday lower.

ES Fantasy Trader

Portfolio stats:  Since we did not trade last night, the account remains at $131,750, after 27 trades (21 wins, 6 losses) starting from $100,000 on 1/1  Tonight we go short at 1403.00 at 1:33 AM EDT.
 

Tuesday possibly higher

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

• Tuesday higher, low confidence.
• ES pivot 1409.75.  Holding above is bullish.
• Rest of week bias higher, technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

Last night I was calling for a higher close today, which we got, but I was expecting us to be bound by the Dow's 13,250 resistance line.  Today's close at 13,264 just breaks that.  Is this significant?  Let's see what's "up" with that.

The technicals

The Dow: I think it is significant.  Today we closed above a level that had been hit only three times intraday so far this year.  We have now comfortably cleared the highs of 2011 and are still not as overbought as we were back then.  The monthly upper BB is at 13,524. I think we've finally cleared out all the people who bought in the spring of 2008, rode the market all the way down and swore they'd sell if they ever got back to even, so there's not much standing in the way of the next 300 or so points.  Then of course there's the big barrier at 14,000 and the Dow's all-time high of 14,198.10 from October 2007.

The VIX:  For the fifth day in a row, we had a VIX that made a large excursion only to return almost exactly to the 15.5 level, closing up 0.9% at 15.64 today.  But this gain came on a big red candle, and its intraday high was lower than the two previous days that moved above 15.5.  The VIX is seemingly unable to gain any real traction here, which is good for stocks.  The futures seem to support this, having gained just 0.05% today on a red hanging man.

Market index futures: All three futures have just turned slightly positive at 1:06 AM EDT.  ES is now up 0.04%.  After today's fat green star, it is encouraging to see the overnight trading around the day's close rather than moving lower.  That said, there's resistance nearby at 1415, then again at today's high of 1417.75, so while some more upside is possible, it may be getting harder to come by than today.

ES daily pivot: Tonight the pivot jumps from 1401.75 to 1409.75.  With ES basically flat since the close, we remain above the new number, though not as much as earlier today.  Still, holding above is positive.

Dollar index: As I expected, the dollar moved lower today, giving up all of Friday's gains and a bit more.  With the lower BB falling away and the dollar stuck in a descending RTC back to March 14th, there's nothing here to suggest a move higher any time soon, also good for stocks.

Morningstar Market Fair Value Index: Beginning tonight, I am no longer going to comment on this number.  It seems to change from day to day (meaning that previous numbers get revised randomly) so I have no use for it.  I think it still makes a reasonable longer term indicator, but there's no point watching it every day, especially if you can't believe the numbers.  Beginning tomorrow, I'll be commenting on the transportation index, $TRAN, in this spot.


History: According to The Stock Traders Almanac, this whole week is historically quite bullish.  In fact, April is number one ranked month of the entire year for the Dow.

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:

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

 12  3/19       46         29        +     1404

 13  3/26       39         29        +     1397

 14  4/2        42         21        +     1408

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 3/5 was correct, the S&P now being higher than then.  I'm using the column "Accuracy" to track my calls.  So now I'm 10 for 10.  And of course that means that since I voted with the majority back then, the poll as a whole was also correct that week.  Once again the Ticker Sense bloggers continue to bat 1000.  And as all year long so far, I again voted bullish this week.  With the year now one quarter gone, I'm still not seeing any immediate technical reversal indicators on the monthly SPX chart.  However, I am seeing signs that a turnaround is coming, possibly next month.  This may be a good time to sell in May, as they say.

This week we see that bullish sentiment increased a little, but the big change was the drop in bearish sentiment from 29% to 21%.  Apparently, some of the pessimists are now throwing in the towel and moving to the sidelines.  Is this a contrarian sign of impending doom?  I don't think so.  The 21% bearish is still only equal to the previous low on January 3rd, and the 42% bullish is actually the second lowest bullish reading so far this year.

     And the winner is...

I think there's still some more room to run higher, particularly given the historical bias in the first week of April.  So I'm going to say we close higher Tuesday, though possibly not by much, in view of several resistance levels not too far above current prices.

ES Fantasy Trader

Last night's long was profitable and even though I missed the opening pop we still brought home 3.75 points.  Tonight we're going to stand aside, because I'm not seeing a big edge.

Portfolio stats:  We begin the month and the second quarter with $131,750, after 27 trades (21 wins, 6 losses) starting from $100,000 on 1/1

SLD    10    ES    false    JUN12 Futures     1411.25    USD    GLOBEX    11:37:58   

BOT    10    ES    false    JUN12 Futures     1407.50    USD    GLOBEX    00:47:55   

 

Monday maybe higher

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

• Monday higher, medium confidence.
• ES pivot 1401.75.  Breaking above is bullish.
• Rest of week bias higher, technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes long at 1407.50.

Link of the Day

How Much Money Does It Take To Be In The Top 1% of Wealth and Net Worth in the United States 
 - Joshua Kennnon Blog


Recap

Last Thursday we faced something of a conundrum with the Dow and dollar charts giving contradictory signals.  I decided to go with the VIX and the futures which were guiding higher and so it was, with the Dow wrapping up the quarter with a decent 66 point gain.  Today is April 1st, but there's no fooling the Night Owl as we figure out what might be in store for Monday.

The technicals

The Dow: Thursday's hammer was confirmed with a nice solid green candle Friday on increased volume.  Window dressing?  Perhaps, but this three day pattern which I call a morning hammer star, is rather bullish.  The indicators too have now reversed course and are headed higher.

The VIX:  Perhaps reflecting my confusion last Thursday, the VIX on Friday put in a green candle right at the bottom of Thursday's tall red candle.  That makes now four straight days of closes right around 15.50.  The VIX seems to get pulled down when it tries to go higher, and up when it tries to go lower.  The futures, on the other hand, sure look like they're going lower, and that would be good for stocks.

Market index futures: At 1:10 AM EDT all three futures are positive, with ES up 0.27% after a gap-up open when trading opened Sunday evening.  After last Thursday's doji, we got a solid green candle on Friday confirming the doji as reversal.  This evening's gap-up open shows good follow-through.  OBV is moving up but not yet at overbought levels and the stochastic just formed a bullish crossover.    I'd say this chart is in pretty good shape.

ES daily pivot: Tonight the pivot rises from 1396.17 to 1401.75.  While ES has been drifting ever so slightly lower since around 7 PM Sunday, we are still five points above the new pivot.

Dollar index: Last Thursday the dollar chart was confusing to me.  Friday provided us with some clarity, with a big gap down that touched the lower BB and eventually closed down 0.28% but on a green candle.  The weekly chart though, with a now completed candle, continues to guide lower with all indicators continuing to come off overbought levels and a now complete bearish stochastic crossover.  This can only be good for stocks.

Morningstar Market Fair Value Index: I don't know what's up with MS and their index, but now they're showing the number as 0.96, unchanged in six straight sessions, whereas last week they were showing numbers up to 0.98.  I'm about ready to drop this as a daily indicator if I can't get consistent believable numbers out of them.

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

     And the winner is...

Tonight I'm seeing more positive signs than negative, so I have to give it to the bulls.  That said, the Dow is still pretty much range-bound in the 13,100-13,250 area and we're closer to the top of that than the bottom.  I'm not sure we're going to have the juice on Monday to break out above this, so while I'm going for a higher close Monday, I'm also thinking the upside is limited.

Performance:

Here are my performance stats so far for 2012.  "ESFT" is the ES Fantasy Trader.  The first two columns are for my trading account.  The next is for the ESFT.  The last is the Dow, my reference benchmark that I try to match or beat.

 Date    Trading Month  Tr. YTD  ESFT YTD   Dow YTD

1/31/12       7.41%       7.41%   -0.50%     3.41%

2/29/12       3.67%      11.35%    7.88%     6.02%

3/31/12       1.76%      13.31%   29.88%     8.16%

ES Fantasy Trader

Thursday night's long was good for merely a single point, but a win is a win, right?

Portfolio stats:  We finish the month and the first quarter with $129,875, after 26 trades (20 wins, 6 losses) starting from $100,000 on 1/1.  Tonight we go long right at Thursday's pivot, 1407.50 at 12:48 AM.

SLD    10    ES    false    JUN12 Futures     1402.50    USD    GLOBEX    MAR 30 11:20:39   

BOT    10    ES    false    JUN12 Futures     1401.50    USD    GLOBEX    MAR 30 01:15:58