Wednesday uncertain

The Hoot 
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• Wednesday uncertain.
• ES pivot 1743.75.  Holding below is bearish.
• Rest of week bias uncertain.
• Monthly outlook: bias lower.
• ES Fantasy Trader standing aside.

Recap

Last night I wrote "Much has been made about the Dow breaking its 200 day MA.   But that's not always instantly fatal".  And sure enough, the world did not come to an end on Tuesday as the Dow rebounded a decent 72 points to return to just below that MA.  But now things get tricky - was this just a relief rally, a DCB, or is there another leg down coming?  We'll see what the charts have to say about that.

The technicals (daily)

The Dow: Last night the Dow looked ripe to me for a DCB and that's pretty much what we got on Tuesday.  The 200 day MA is now resistance and we remain in a descending RTC  but the indicators remain oversold.  So we're kind of between the proverbial rock and the hard place here.  This chart seems vaguely bullish but that requires confirmation so I'm not taking the one on tonight.

The VIX:  Last night I wrote "the VIX is ready to move lower" and it did on Tuesday, down almost 11%.to form a nice bearish harami.  Even at that, indicators are not yet off overbought and the stochastic just squeaked out a bearish crossover.  So I'd say more downside seems possible here on Wednesday.

Market index futures: Tonight all three futures are lower at 12:13 AM EST with ES down by 0.20%.  After Monday's huge red marubozu, Tuesday's comparatively small gains look like a classic DCB.  And the overnight's not looking too promising.  So far, support around 1740 is holding and indicators remains fairly oversold.  But like the euro (below) it's not clear where the next leg up is coming from.  I'd expect ES to sort of muddle along at these levels for a few days from here.

ES daily pivot: Tonight the pivot rises from 1749.50  to 1743.75. The evening-long slide in ES leaves us below the new pivot despite the drop so this indicator is now bearish.

Dollar index: I missed the dollar, which rose a bit rather than falling but produced a small harami doji that lifted indicators to fairly overbought levels.  The stochastic is leveling out in anticipation of a bearish crossover so  I still have to think that the next move is lower.

Euro: Last night I didn't think the euro had it in it to move higher and indeed it settled of a red spinning top on Wednesday.  We remain pretty much in the same boat tonight so I have to draw the same conclusion - the euro will be hard-pressed to advance on Wednesday.

Transportation: Last night I wrote "I'd not be going short right here" and good thing too as the trans posted a big 1.15% gain on Tuesday bouncing nicely off their lower BB.  RSI is now just off oversold so further gains are not out of the question.


Accuracy (daily calls): 

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points
January    5      10      6           0       0.333     64
February   1       1      0           0       0.500   -253

     And the winner is...

The charts tonight are not nearly as clear as they were last night.  While the patterns are at least a bit bullish, they don't seem to have a lot of oomph behind them.  However, I'll note that the Morningstar Market Fair Value Index dropped to 1.00 on Monday for the first time since last October 9th, when the Dow oddly enough also last hit its 200 day MA.  And that marked the exact end of a three-week slide back then.

So technically we remain oversold and I see more upside potential than downside risk.  However, there's also more economic news coming out on Wednesday and it hasn't been all that great lately and the market seems to be paying close attention.  Therefore, I reluctantly call Wednesday uncertain.

ES Fantasy Trader

Portfolio stats:  the account remains at $100,000 as we wait for the right moment to enter our first trade of the year.  While I do think we're going lower on Friday, I still don't have a good enough edge to warrant going short just yet, so we'll just stand aside again.  There's no rush.