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- Wednesday uncertain.
- ES pivot 1560.58. . Holding above is bullish
- Rest of week bias higher technically.
- Monthly outlook: bias higher.
- ES Fantasy Trader standing aside.
Tuesday repeated the February 25/26 pattern just about exactly, with a big dump followed by a 50% retracement once Mr. Market figured out the world wasn't actually coming to an end. So now will we continue the February pattern on Wednesday or turn lower again? Let's get right to it and run the charts.
The technicals (daily)
The Dow: On Tuesday the Dow gave us the bounce I'd be expecting, for a 1.06% gain. It also short-circuited the indicators which halted their trip from overbought to oversold and actually turned back up again. In fact the stochastic seems to be preparing for a bullish crossover just three days after completing a bearish one. All of which leaves this chart just too tough to call.
The VIX: And just as I expected last night, the VIX was unable to sustain its launch into outer space and came crashing back to earth on Tuesday with a 19.17% drop that took it right back through its 200 day MA as quickly as it had gone the day before. This is always a high-probability call. And even with this drop, we're still overbought, so more downside isn't out of the question here.
Market index futures:Tonight all three futures are lower at 1:10 AM EDT with ES down by 0.19%. With Tuesday's candle strongly retracing Monday's big dive, you have to wonder if Wednesday might not retrace Tuesday's big gains. Thing is, is that while we were highly overbought on Friday and ready for a fall, that's no longer the case. Monday's action let a lot of hot air out of this balloon. The stochastic is now actually almost ready to form a bullish crossover. Still, these charts where we stop halfway between BB's are always tough calls. My best guess is that any further downside is limited at this point, if we get any at all.
ES daily pivot: Tonight the pivot rises from 1555.08 to 1560.58. The strong performance of ES on Tuesday keeps us above the new pivot even despite a slow drift lower in the overnight so that's a positive sign.
Dollar index: Last night I wrote "given the recent pattern, I'd look for a move lower on Tuesday" and the dollar obliged, dumping 0.83% to close under its lower BB and remain solidly inside its descending RTC. And with indicators still not quite yet oversold, more downside is possible here on Wednesday.
Euro: Last night I wrote "the lack of pin action and the pivot crossing both suggest a move higher on Tuesday" and that's what happened here too, with the euro closing on its upper BB at 1.3196 on a tall green marubozu. It's just meandering around at the top of that candle in the overnight so far. The euro remains in an admittedly broad rising RTC and is prone to creeping up its upper BB rather than bouncing off. It's indicators, while oversold are only just barely so, making me think that at least some small further gains might happen on Wednesday.
Transportation: On Tuesday the trans handily outperformed the Dow, up 2.22% vs. 1.08%. And that was enough to arrest the decline of the indicators here too. Having now bounced off their lower BB,we just might see more upside here on Wednesday.
Accuracy (daily calls):
Month right wrong no call conditional batting Dow
January 5 7 6 3 0.533 -101
February 3 4 5 6 0.692 131
March 5 7 5 2 0.500 121
April 5 2 3 0 0.714 444
And the winner is...
It doesn't really look like the market is particularly interested in starting a big correction, at least not yet. I think we're due for some more upside later this week. I'm just not sure if it will happen on Wednesday. It looks like things are starting to set up for a move higher, but it might be premature to call it just yet. And the picture is somewhat muddled tonight, with the futures and currencies looking bearish while the VIX and trans look bullish. So I'm going to have to satisfy myself with simply calling Wednesday uncertain.
ES Fantasy Trader
Portfolio stats: the account remains at $98,250 after 10 trades (8 for 10 total, 3 for 3 longs, 5 for 7 short) starting from $100,000 on 1/1/13. Tonight we stand aside in the face of the "uncertain" call.