Wednesday

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

• Wednesday higher.
• ES pivot 1950.08  Holding above is bullish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias lower.
• Single stock trader: VZ still not a swing trade buy.

Recap

Despite what looked like a bearish technical pattern last night the futures prevailed and Mr. Market had a great day on Tuesday, possibly due to some good news out of China. Who knows. I don't even pay any attention to any of that anymore. My position is that you can't believe anything they say, good or bad. So on we go to Wednesday to see where the charts may lead us next as this holiday shortened week progresses.


The technicals

The Dow:  On Tuesday the Dow confirmed historical precedents by rocketing higher right out of the gate and then continuing on to close on the highs of the day with a handy 2.42% advance. Looking at the daily chart one can imagine a double bottom now in place over the last week . Interestingly, Tuesday's action has also caused the stochastic to curve back around just about into position for a bullish crossover from a high level. And as I always say those are often good for a day or two of higher prices following. With the Dow now looking like it has broken out of its recent week-long congestion area I'd say this chart looks good to move higher again on Wednesday.

The VIX:  Last night I wrote that the VIX looks like it was ready to move higher again on Tuesday. That was of course completely wrong as the VIX instead confirmed Monday's tall spinning top and then gapped right back down again to close more than 10% and below its levels of last Friday. But it did it on yet another doji star. T hat makes three in a row. This would be a classical bearish tri-star pattern except for the fact that that is entered from below whereas this one is entered on a descending trend from above.

That just leaves us with indicators that are totally confused with RSI rising but momentum falling, and the stochastic continue to be threaded out at a low level. Tuesday's doji would suggest there is a possibility of the VIX moving higher on Wednesday and with the indicators still closer to oversold than overbought that still might happen.

Market index futures: Tonight, all three futures are higher at 1:00 AM EDT with ES up 0.67%.  ES had a fantastic day on Tuesday putting in a tall green marubozu that handily cleared three days' resistance to close at 1966. The indicators are still not yet overbought and the stochastic in fact has generated a bullish crossover from a high level just like the Dow did. This all makes me think that despite Tuesday's big gains iES might still have enough gas left in the tank to continue higher on Wednesday. The fact that the overnight continues moving higher tends to support that view.

ES daily pivot: Tonight the ES daily pivot rises again from 1926.25 to 1950.08. That still leaves ES above its new pivot so this indicator continues bullish.

Dollar index:  Last night the dollar was looking too tricky for me to call. On Tuesday turns out it lost 0.26% to fall right back to where it opened last Friday. However we now have three consecutive days of the dollar putting in lower highs and that was enough to send the indicators moving lower off of overbought peaks. We also now have a stochastic that has completed a bearish crossover so I would say Tuesday's candle points to continued lower on Wednesday.

Euro:  At least I got the euro correct. Last night I said it had a good chance of closing higher on Tuesday and so it did, back up to 1.1186 on a tall spinning top, the second one in a row. All the indicators now continue moving higher off of oversold and we have a bullish stochastic crossover in place. However the new overnight is moving lower after having gapped up, now calling into question whether this is the start of a new rally or just another fake-out breakout like we saw last week.

Transportation:  On Tuesday the trans outperformed the Dow with a giant 2.81% advance that clearly broke recent resistance at 7908. All the indicators continue rising but are not yet overbought so with a tall green marubozu now in place there are no bearish signs on this chart .

Accuracy: 

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points
January    8      6       4           1       0.563    627
February   6      4       5           3       0.692    183
March      7      6       5           4       0.647    976
April      3      8       7           0       0.273      1
May        6      5       5           2       0.615    581
June       8      6       3           4       0.706    552
July      10      1       5           4       0.938   1212
August    10      2       3           2       0.857   2314
September  4      0       1           0       1.000   1424

     And the winner is...

With no bearish technical indications to speak of on the charts tonight and some decent follow-though in the overnight futures, it doesn't seem unreasonable to call Wednesday higher.

Single Stock Trader

Last night Verizon wasn't looking at all like my preferred swing trade buy set up, but on Tuesday it got caught up in the general market euphoria and gapped up anyway over 2 and a quarter percent to put in a green hanging man. But that also caused the stochastic to suddenly curve back around just shy of a bullish crossover. And with the other indicators having arrested their fall from overbought and now moving higher again it looks like VZ may continue higher on Wednesday - but this is still not my preferred buy setup.

Monday lower

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

• Monday lower, low confidence.
• ES pivot 1817.00.  Holding below is bearish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias lower.
• ES Fantasy Trader standing aside.

Recap

The selling simply continued on Friday as no one wanted to stay long the weekend with a weak-looking technical picture.  Someone on CNBC also mentioned tax selling.  I was thinking tax-loss selling, but that's supposed to happen in December.  Then I realized he meant people simply selling stocks to raise cash to pay their taxes.  Do people really  do that?  I mean wait til the last second to sell?    There maybe something to that as I went back and checked the week before April 15th.  Going back three years, yup sure enough, the market goes lower.  Something to think about next year.  Now things get complicated as we enter a holiday-shortened week.

The technicals

The Dow: Friday's action took the Dow down to and actually below its lower BB.  Indicators are now quite oversold though not extremely so.  We broke support at 16,066 and all that remains now is the hard number at 16K even.  The 200 day MA at 15,752 is coming into view as the ultimate backstop but I don't think we'll get there this week.  Still, there's no immediate reversal sign on this chart so it continues to look bearish.

The VIX:  On the other hand, there is a reversal sign on the VIX.  On Friday the VIX gained 7.27% but did it on a gap-up spinning top to form 2/3 of a classic bearish evening star.  Reinforcing this is the fact that the VIX crossed its upper BB and even closed above it.  Once again I state that the VIX rarely spends more than a day or two above its upper BB before retreating.  Indicators are now quite overbought so it looks like a lower VIX is coming soon, though maybe not perhaps as soon as Monday.

Market index futures: Tonight, all three futures are lower at 12:28 AM EDT, with ES down by 0.15%.  ES, like the Dow put in two nasty down days to end last week.  And there seems to be no end in sight.  OBV is decidedly negative and continues to fall, and money flow has been decreasing since April 3rd.  And what was an incipient bullish stochastic crossover was short-circuited so while the indicators are now oversold, there's no sign of a turn-around.  The only ray of hope here is that the developing candle is looking like a spinning top reversal but it's generally poor practice to read too much into a half-baked candle.  ES also has no support until the round-number 1800 level, and then 1797.

ES daily pivot: Tonight the pivot tumbles again from 1839.42 to 1817.00. Even with this big drop we're still beneath the new pivot so this indicator remains bearish.  I was asked today by a reader about my use of the pivot.  There's a good introduction to pivots here: https://en.wikipedia.org/wiki/Pivot_point.  This is a concept I can thank Dr. Steenbarger for s well as many other insights into the market.  I'm afraid my use of the pivot is pretty simple, some might say simplistic, but it works for me.

I really have just two basic rules.  Price moving above the pivot from below is a bullish sign, and vice-versa.  And the second rule is that you should watch out during a trending pattern for the stock or whatever to get too far extended from the pivot as that can signal a reversal.  I guess it's just a fancy way of saying "reversion to mean" but the pivot gives you a nice anchor for where that mean should be considered to be.

I also have what I call a "conditional forecast" that uses the ES pivot.  Sometimes if ES is close to its pivot in the wee hours of the night, I'll take a guess that the market will close in the direction of the pivot crossing if it makes one before mid-morning the next day.  So if we're above the pivot and stay above, that's bullish.  But if we break down under the pivot, the market will close lower.  It doesn't always work, but it works often enough to be useful.

Dollar index: The dollar on Friday posted a 0.09% gain on a red candle.  But that was enough toe just exit the descending RTC for a bullish setup, while driving RSI down to very oversold and leaving the stochastic on the floor flat as a pancake.  With support holding it looks like we have a hint of a reversal, but on that requires confirmation on Monday.

Euro: And on Friday the euro put in a classic doji star right at the top of Thursday's green marubozu after four straight days of gains.  The overnight is seeming to confirm this doji, trading sharply lower and creating a bearish stochastic crossover, and making Monday look like a loser for the euro.

Transportation: On Friday the trans pretty much reflected the Dow so the same comments apply here too - oversold but no immediate reversal in sight.

Accuracy:

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points
January    5      10      6           0       0.333     64
February   5       2      2           1       0.750    107
March     12       3      6           0       0.800    431
April      4       1      3           0       0.800    196

   
     And the winner is...

The SPX Hi-Lo indicator I use comes from stockcharts.com and they're showing a reading of zero tonight which I'm pretty sure is wrong.  I think it's more like 35 which is still pretty low but frustratingly not low enough to be a major reversal sign.  Also the NYSE A/D line continues to put in lower highs and lower lows - a bearish sign.  And the Morningstar Market Fair Value Index has now fallen to 1.01, its lowest level since January 27th (on the way down) - and that wasn't the bottom back then either.  There's only a tiny smattering of hope in the charts tonight making me think we might see a reversal later this week but I don't think it's going to be Monday, hence I'm regrettably calling Monday lower.  I'll be happy to be proven wrong since I'm always net long.

ES Fantasy Trader

Portfolio stats:  the account remains at $105,625 after two trades in 2014, staring with $100,000.  We are now 2 for 2 total, 2 for 2 long, 0 for 0 short.  Tonight we stand aside.