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- Wednesday higher, low confidence.
- ES pivot 1630.33. Holding above is bullish.
- Rest of the week bias higher technically.
- Monthly outlook: bias higher.
- ES Fantasy Trader standing aside.
Well it looks like the volatility is back, Jack, as the Dow dumped 117 points on Tuesday, a result I was not at all anticipating and which brought us back to where we were two days ago. So with three up days effectively canceled out, where do we go next? Once again, the only place to turn is the charts.
The technicals (daily)
The Dow: Tuesday's red candle confirmed Monday's doji and very nearly closed back into the descending RTC, which would cancel the bullish breakout. Meanwhile, the indicators remain mixed at about halfway between oversold and overbought. RSI and the stochastic are rising, momentum and money flow are falling, and OBV remains quite high (over 1B). It sounds naive but we note, as many others have, that the Dow has still not had more than two consecutive down days all year so far (and we're almost halfway gone already). That alone seems to favor a move higher on Wednesday. I'll note too that Tuesday's close, 15,122 was right on a three week support line.
The VIX: Tuesday's's big 10.56% gap-up in the VIX canceled the bearish RTC trigger, but did so with a tall skinny hanging man. However, it also set up the stochastic for a bullish crossover, so this chart is really playing it close to the vest tonight. There is one good tell here though: the VIX is now very extended from its pivot of 15.38 so I'd be looking for some sort of gap-filling reversion on Wednesday.
Market index futures: Tonight all three futures are higher at 1:25 AM EDT with ES up by 0.23%. This non-trivial gain coming on the heels of Tuesday's big drop makes me think that the usual pattern so far this year is intact - with big one day drops followed by retracements of 25 to 75%. We do have a stochastic that's trying to form a bearish crossover, but any further advances in ES will rapidly unwind that.
ES daily pivot: Tonight the pivot drops from 1641.;66 to 1630.33. After spending the day underwater, ES began a slow drift higher around 6 PM Tuesday in a move that broke through the new pivot around 12:30 AM - definitely a bullish sign.
Dollar index: It was a big day for the dollar on Tuesday as it broke through its 200 day MA ($USDUPX, the first time that's happened since last November 19th. That move presaged a month of lower prices. And right now the $ remains stuck in a steep descending RTC from May 22nd so the current trend remains intact. There's nothing bullish about this chart.
Euro: And correspondingly, the euro remains in a rising RTC, posting a second day of solid gains on Tuesday. Last night I wrote "This keeps us inside a rising RTC so despite highly overbought indicators, I can't say I see a move lower here now" and nothing has changed tonight. That syncs with my bearish view of the dollar.
Transportation: On Tuesday the trans confirmed Monday's bearish spinning top with a one percent decline that also canceled the bullish RTC setup - no trigger here. In fact, we're right back into the descending RTC. So this chart is not looking particularly bullish tonight.
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 7 5 5 3 0.667 328
May 3 4 6 4 0.636 85
June 1 3 3 0 0.250 52
And the winner is...
Tuesday and Wednesday are historically the weakest days of this week but we do have this ongoing pattern of buyers stepping in after two consecutive down days all year so far. With the TLT remaining in a major downtrend and copper right at a two-month support line, I'm not so sure about more downside being available here. I also don't like the look of that hanging man on the VIX. I also looked at the SPX Hi-Lo index. It just touched its 200 day MA on Tuesday, an event that has happened three times before this year. In all three cases, the market moved higher the next day.
So call me crazy, but I'm going to go waaay out on a limb and go with Wednesday higher.
ES Fantasy Trader
Portfolio stats: the account remains at $110,375 after 12 trades (10 for 12 total, 5 for 5 longs, 5 for 7 short) starting from $100,000 on 1/1/13. Tonight we stand aside because I don't trade on calls that start off "call me crazy".