Friday higher

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

• Friday higher, low confidence.
  
• ES pivot 1696.17.  Holding above is bullish.
• Next week bias uncertain technically.
• Monthly outlook: bias higher.
• ES Fantasy Trader remains short at 1643.00.

Recap

So after a slight six session sag, the Dow put a definitive end to it on Thursday with a 128 point pop right out the gate to close at yet another record high.  Is the air getting kind of thin at these altitudes or is Mr. Market getting ready to go on oxygen as he climbs clear through the stratosphere?  You don't need an X-15 to answer that one - just some good old reliable charts.  So fasten your seat belts - it's going to be a bumpy month.

The technicals (daily)

The Dow: Huh - last night I wrote "this chart just looks vaguely bearish".  Gee, I'm glad I added "vaguely" because Thursday's big green marubozu smashed right through last week's resistance around 15,600.  It also exited the descending RTC in a big way for a bullish setup, gave us a bullish stochastic crossover, and turned the other indicators upward.  With a record close, the only resistance now comes from the upper BB at 15,715.  And with the indicators still a ways from overbought, I think more upside might be possible here on Friday.

The VIX:  At least I got this much right when I wrote "I'm doubtful we'll see a significantly higher VIX any time soon" last night.  On Thursday the VIX dropped 3.79% to close back under 13 on a gap-down inverted hammer that set off a bearish stochastic crossover and sent RSI moving down.  That all spells continued lower for Friday.  Next support isn't til 12.43.

Market index futures: Tonight all three futures are higher once again at 1:27 AM EDT with ES up by 0.10%.  Last night I wrote "this chart is looking pretty positive to me tonight" and it did not disappoint, crashing through resistance at 1693 to close at 1700.25.  Our bullish stochastic crossover is complete but the indicators are now entering overbought territory (though this year we've seen them remain that way for long periods of time before the market moved lower).  So with the only resistance now the upper BB at 1710.7, I expect ES to take a look at that level before we hit the traditionally down month of September.

ES daily pivot: Tonight the pivot jumps from 1684.92  to 1696.17.  We were considerably above the old number and remain five points above the new pivot, enough to remain bullish.

Dollar index: The dollar continued its wacky ways on Thursday.  After a big bearish candle on Wednesday, it put in a big 1.09% gain that vaulted it right back over its 200 day MA, the fifth such crossing in as many days.  I'm not even going to hazard a guess as to where this currency may be headed on Friday..

Euro: At least I got the euro right last night when I said "I just have to believe that the euro is going lower on Thursday" as it fell throughout the day to close at 1.3216.    It's continuing a tad lower in the overnight but that's enough for a bearish RTC exit so I'm going to say the euro goes lower again on Friday.

Transportation: Last night I wrote here "I'm thinking the trans go higher from here on Thursday."  And holy moly did they ever - up 3.22% for their biggest gain of the year, closing above their upper BB at 6642 on increased volume.  That also caused a bullish stochastic crossover.  But even with all that the indicators aren't yet overbought.  However, I now have two concerns - one is having hit the upper BB and two is that we're now way over-extended from the pivot, at 6464.  Still there seems to be a lot of gas in this tank so one more up day is not out of the question.

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      5      7      5           2        0.500    121
April      7      5      5           3        0.667    328
May        3      4      6           4        0.636     85
June       6      5      6           0        0.545    543
July      10      2      4           4        0.875    486
August     1      0      0           0        1.000    128

     And the winner is...

Interesting move on Thursday.  We were up big, but not really all that big.  It seemed bigger just because the recent action has been pretty lackluster.  So was it big enough to trigger some retracement?  I'm not so sure.  I see two competing forces at work tonight.  The charts are generally bullish but we've got a Friday coming up and there's always an incentive there for some profit-taking before the weekend, particularly given the first week of August's historically weak track record.  This could be amplified by the fact that we hit record highs on Thursday.  Buy low, sell high, eh?

Nonetheless, I'm not happy calling the market lower in the absence of any clear bearish technical signs, so here's what I think: we will see Friday higher, but less than Thursday.  We could possibly see some sort of topping candle in the process.  Happy weekend and see you again Sunday night.

ES Fantasy Trader

Portfolio stats: the account remains at $115,000 even after 14 trades (11 for 14 total, 6 for 6 longs, 5 for 8 short) starting from $100,000 on 1/1/13.  Tonight we remain short at 1643.00.  We're in too deep to ditch this trade now.  I think it would be a mistake to dump it just when the market hits a record high.