Thursday lower

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

• Thursday lower, low confidence.
  
• ES pivot 1540.25.  Holding below is bearish.
• Friday bias lower technically.
• Monthly outlook: bias lower.
• ES Fantasy Trader going short at 1538.25.

Recap

My play last night was to not get too excited over the record high Dow close and just to treat it as another technical day - and that worked out quite nicely as the Dow finished up another 42 points.  But with four up in a row into uncharted (literally) territory, can we make it five of a kind?  Faites vos jeux, rien ne vas plus!  At the risk of mixing our gambling metaphors, let's see if the little ball stops on red or black on Thursday.

The technicals (daily)

The Dow: The Dow continued it ascent into the stratosphere on Wednesday with another green candle and now gives us a bullish three white soldiers pattern that continues to crawl along the upper BB.  And volume has been increasing for the past three days.  However, we're now quite overbought and the stochastic may be getting ready to set up a bearish crossover.  On the other hand, we had a similar situation for most of January and that did nothing but go straight up.  But we remain inside the rising RTC and I have to say I still don't see any sign of a pullback on this chart.

The VIX:  Here's an unusual divergence, as the VIX actually rose 0.37% while the Dow and SPX gained too.  That's unusual.  Although the gain was small, it formed a bullish engulfing pattern against Tuesday's morning star and closed back above support of 13.50.  With indicators now as oversold as the last few times the VIX has bottomed and the futures posting similar gains, we could definitely see more upside from the VIX on Thursday.

Market index futures: Tonight all three futures are mixed at 1:05 AM EST with ES down by 0.05%, NQ up 0.04% and YM dead flat.. Unlike the past two nights, this is looking like a bit of uncertainty.  And that's reflected in Wednesday's candle, which was a short evening star that traded outside the rising RTC for a bearish setup.  The new candle is forming as a bearish engulfing pattern consuming the star and confirming the signal.  We also now have a bearish crossover from the stochastic, just barely.   So all in all, this chart is looking much weaker than last night.

ES daily pivot: Tonight the pivot rises again from 1534.75  to 1540.25.  This bump combined with ES drifting lower in the overnight now leaves us below the new pivot, so that becomes a bearish sign.

Dollar index:The dollar remains firmly inside it rising RTC as Wednesday's 0.44% gain broke a three day slide and completed a bullish three candle morning star pattern.  So despite overbought indicators, we could see the dollar continue to move higher.

Euro: And as the dollar rose the euro fell on Wednesday, keeping it inside its descending RTC.  While it is rising in the overnight that's off a gap down earlier this evening, so it's not clear that the euro is really interested in moving higher just yet.  The day-to-day moves of the euro have been sort of herky-jerky lately anyway.

Transportation:Here's another divergence, with the trans dropping 0.42% even as the Dow advanced 0.30% on Wednesday.  And they gave us a red inverted hammer.  And the indicators are getting more overbought, and the stochastic is about to make a bearish crossover.  I'm now thinking that there's a good chance of this chart going lower on Thursday.


Accuracy (daily calls): 

Month     right wrong  no call  conditional  batting   Dow
                                             average  points

January    5      7      6           3        0.533   -101
February   3      4      5           6        0.692    131
March      2      1      1           0        0.667    130

     And the winner is...

Tonight it's sort of looking like Mr. Market is running out of steam.  There are some bearish signs starting to pop up, especially in the futures and the VIX, enough in fact to make me call Thursday lower.  I also took out a position in SPXS as a hedge on Wednesday afternoon.

ES Fantasy Trader

Portfolio stats: the account remains $99,375 after 7 trades (6 for 7 total, 3 for 3 longs, 3 for 4 short) starting from $100,000 on 1/1/13.  Tonight we're going short at 1538.25.  I think if this trade isn't successful on Thursday, it stands a chance of coming through on Friday.