Wednesday higher

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

• Wednesday higher, low confidence.
  
• ES pivot 1534.75.  Holding above is bullish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias lower.
• ES Fantasy Trader standing aside.

Recap

Ding!  Finally, we've taken out the previous record high of the Dow when it hit 14,198.10 back in 2007.  And we didn't just nibble at it.  Tuesday's close of 14,254 was  impressive.  Now of course, the question everyone is asking is, does this move signal a breakout or a pullback. Rather than getting into emotional arguments about this or treating Tuesday as some exception to usual market dynamics, let's run the charts and look for the usual technical signs.

The technicals (daily)

The Dow: OK, so Tuesday's big green marubozu not only shattered the all-time high for the Dow, but also busted above the upper BB.  It also canceled out three day's worth of dojis.  And even this big move did not bring us into overbought territory (though we're close).  In fact, there are no bearish signs on this chart tonight.  The only note of caution I'd bring up is that as the Dow has been steadily rising for the past four days, volume has been declining.  Tuesday's volume was just slightly higher than Monday's, but the highest volume of the past eight days has been on the only two days that were down.  Hmmm...

The VIX:  Last night I wrote that I was "now calling for a lower VIX again on Tuesday."  So bingo - got that one right as the VIX  gapped down 3.78% for a classic morning star.  The VIX also closed right on a support line at 13.48.  But with the indicators still not yet oversold and the stochastic still not forming a bullish crossover, it is premature to call the VIX higher just yet.

Market index futures:Tonight all three futures are once again higher at 1:23 AM EST with ES up by 0;13%.  Like the Dow, ES just busted through its upper BB on Tuesday.  And lookee here - remember what I wrote last night?  "I note that we'd have to close above 1537 on Tuesday to avoid a bearish setup."  Well guess what - ES closed at 1537.00 on the dot.  I was somewhat skeptical that ES could do it, but it did.  And with an intraday high of 1542.75, I'd say the bearish setup is, somewhat surprisingly, averted.

Tonight we;re in a similar position.  ES continues to move higher, now at 1539.25, climbing its upper BB.  And now I'll note that it will have to close above 1549 on Wednesday to avert a bearish setup.  Doable?  Who knows.  I'm not going to gainsay this market right now.  But with the indicators now becoming quite overbought (RSI now 95.59) I'd be cautious about piling on any longs at this level.  Still, I don't see the pullback happening on Wednesday.

ES daily pivot: Tonight the pivot jumps from 1520.00  to 1534.75.  But we were so far above the old number that we remain four points above the new pivot, so that remains a bullish sign.

Dollar index:The dollar gapped down on Tuesday for a 0.13% loss on a small spinning top.  While it remains in a rising RTC, the indicators have been coming down off extreme overbought levels for a few days now, so more downside is possible here on Wednesday.

Euro: Then the euro moved higher as expected on Tuesday, but with a green spinning top.  However this is not being confirmed in the overnight so far as the new candle is moving higher, now up 0.18% to 1.3066.  It also brings the euro out of its descending RTC back to 2/13 for a bullish setup.  And the indicators continue moving up off oversold, and we remain above the pivot.  So it's looking good for continued higher here on Wednesday.

Transportation: And finally, the trans outperformed the Dow, piling on another 1.52% to simply blast right through their upper BB at 6086.  But volume was lower than Monday, we're now into overbought territory, and the stochastic is starting to flatten out for a bearish crossover.  But I don't think any of that will matter until the end of this week.  For the time being, the trans may actually have some more room to run here.


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      1      1      1           0        0.500     88

     And the winner is...

My call last night was based on the performance of the futures and the currencies.  Everything that was true then remains in effect tonight.  You'd think that if taking out the 2007 highs was going to trigger profit-taking or short-selling, we'd already be seeing indications of that in the futures, but we're not.  So with the trans outperforming, copper catching a bounce, the TLT moving lower, the Italian elections having faded back into obscurity, the non-sequesitur leaving Comrade Stalibama with egg on his face, Hugo Chavez having gone to that great Comintern in the sky (and good riddence) and the VIX back in the toilet, the logical call is for Wednesday higher.

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 standing aside again in the absence of a clear reversal sign.