The Contrarian Contrarian

Last Thursday night, I said we'd go higher on Friday and that's just what we got, with a nice 57 point gain to close at 12,342 in the Dow.

Technicals

So what's next? Let's look at the daily Dow chart here because that seems to be the most compelling right now. This is actually looking quite bullish to me. Friday's gain took use decisivly out of the descending regression trend channel going back to the peak on April 8th. And it also provided a bullish confirmation of the hammer candle formed on Thursday. And finally, all of the indicators are in oversold territory and have executed a bullish hook, signifying that they have bottomed.  We see the same story on the daily ES futures chart.  However, ES is actually down by 0.2% at the moment, although it's still early in the evening (8:50 PM EDT).

In any event, note that historically the day after Tax Day is bullish. The Stock Trader's Alamanc was right on the money with a bullish history for Friday. They say that tomorrow is also a good day.

The contrarian contrarian

So what's up with the "contrarian contrarian"? Well it seems to me that everything I've been reading on the web or seeing on the news lately is full of pundits claiming that there's a massive overload of bullish sentiment and that from a contrarian standpoint, this means the market is ready to go down. Well let's take this contrarian thing one step further: if all the analysts are bearish because everyone is bullish, should I then not become bullish because of their bearishness? OK, this is about where my brain starts to hurt, but you have to admit, the daily chart doesn't look bearish in the least right now.

On the other hand, the weekly Dow chart is not looking nearly as good. In fact, on the weekly Dow, we have a doji followed by a hanging man on increasing negative volume. And all the weekly indicators are overbought. Also, the weekly VIX is now down hard against a support level going back a year now around 15.25. Unless it somehow manages to break under that (and I don't think it will), the VIX has nowhere to go but up, and that's bearish for stocks.

Oil

Also oil has now regained the 110 "alarm level" after two big down days at the start of last week. I don't think oil is nearly through with its run up. I remain convinced that this is 100% speculation driven, not supply and demand. I give it another two months. That coincides quite nicely with the peak in 2008, which came at the end of June.  This will also put the squeeze on stocks.

So right now I'm thinking that tomorrow, Monday, is going to be up, but the rest of the week is in doubt.

Performance

I'm not really doing as well as I'd like at this point. My performance has been hurt by the fact that it seems that all of the members of my low price/high yield portfolio (which is part of my trading account) suddenly decided to do secondaries in the last few months, tanking their stock prices. Still I am up 5% year to date, which is just over 27% annually. That's not too bad, although the Dow is now up 6.6% and that's the benchmark I try to beat. And for the week, I was down 0.16%, or a bit worse than the Dow.

Another thing that's limiting my results is that I've been raising cash lately. I think this year I'm going to "sell in May and go away". I didn't do that last year and subsequently regretted it.  Right now the monthly chart is looking even weaker to me than the weekly, with a hanging man followed by what is at the moment a doji.  We'll see.

Outlook mostly positive for tomorrow

Last night I wrote "Further gains possible tomorrow" and that's just what we got today, with the Dow's 14 point gain doubling the advance of the day before.  And right now, it's looking like there may be more upside in store for tomorrow.

Starting with the VIX, we see that it continuyes to eat away at it's supprot around 16.  After gapping up at the open, it just fell away to close at 16.27.  At this point, I'm thinking that it's year-long support level at 15.5 might not be that far out of reach.  A visit to that neighborhood will surely be positive for stocks.  Also noteworthy is that today's candle was a bearish engulfing pattern.  We saw what that did to the oil chart just a few days ago.

The Dow meanwhile put in a hammer pattern and closed at 12,285.  Once again the 12,250 support level was tested and once again it held.  You know the old saying, "That which does not kill me makes me stronger", well the more tests of this level we survive, the stronger that support becomes.  In addition, the Dow's short stochastic began a bullish crossover today and both the RSI and momentum hooked upwards, also bullish.

The story is pretty much the same in the ES futures indicators.  Turning to the ES regression trend channel, we see that three days of basically sideways action have brought us almost to the right edge of the descending channel.  One more day of this will be a bullish setup.  The only negative in the picture is the prices of the futures themselves.  All three are down right now (2 AM EDT), though only modestly from 0.1% to 0.16%.

And historically, The Stock Traders Almanac tells us that Tax Day, April 15th, is historically bullish with the Dow down only five times since 1981.  (OK, I know taxes aren't due til next Monday this year because of some holiday in DC, but I'm assuming the principle remains the same).

So basically all of the factors I talked about last night are still in play tonight, only more so.  This means that although I generally don't like going against what the futures are telling me late at night, I'm going to have to go with the technicals on the charts and make a guess that tomorrow will end out the week on an up note.


Trades

Today I took a small position in Alcoa (AA) at 16.49.  It's taken a beating over the last week and is looking quite oversold at this point.

Further gains possible tomorrow

Yesterday's post was titled "Now looking for higher" and that's just what we got today. Admittedly a 7.4 point gain in the Dow isn't exactly the big score, but it represents a victory for the bulls nonetheless.

And President Nerobama made a speech on TV this afternoon. In case you missed it, I can summarize it real fast: "blah blah blah". That was good for about a 10 point drop in the Dow, but it regained all that and more after he quit (quit speaking, that is).

Moving right along, today's daily chart is not of the Dow but of the VIX. I've been using the VIX lately to guide my market forecasts and it's been working pretty well. Note in this chart how the VIX has been drifting lower over the past two weeks. And the past two days have been interesting. Yesterday it gapped up but ended up putting in a red candle and today we got the exact opposite - a gap down that ended up as a green candle.  That's a real tug-o-war.

But note how today's open, at 16.2 was lower than any point since February 18th. The VIX support at this lower 16's level seems to be softening. If the VIX cannot muster a gain tomorrow, I think it's likely to go lower, to its baseline support at 15.44. That's a level that goes back a whole year. One might even note the lower Bollinger band at 13.74, though I don't think a trip down that far is in the offing any time soon.

Also, the VIX indicators, which just a few days ago were indicating oversold, are now out of that region. By contrast, all of the Dow indicators are now in oversold territory. We also saw another test of the 12,20 level today and once again, it held. The Dow ended up forming a doji indicating corresponding indecision and a loss of downward momentum after yesterday's big drop.

Oil meanwhile sank into the 105's today before recovering but only back to the low 107 area in the overnight.

Finally, the futures are all up at this hour (1:15 AM EDT), and although admittedly only by a small fraction, the trend has been up since around 9:30 PM.

So overall, I'm liking the prospects for another gain tomorrow. With the VIX still unable to find the gas pedal and the Dow having dropped into oversold territory, I think we've got more upside potential than downside risk at this point.  That's all, she wrote.

Trades

I got back into my MGN silver play at 2.86 today.

Now looking for higher

Last night's post was titled "Looking for lower" and boy we got lower today, to the tune of a 117 point dump in the Dow.  The good news is that today's close at 12,263 actually represents a successful test of the support level at 12,250.  In addition, the Dow indicators have now all gone from way overbought to the edge of the oversold area.

And go back to yesterday's post for my comments on oil.  Look again at the bearish engulfing pattern.  That is one of the most reliable candlestick patterns out there.  And sure enough, oil was down big today, falling below 107.

Now after today's big drop is it possible to still go lower tomorrow?  Sure, except for two things.  First, while the VIX gapped up at the open today, it ended up in fact putting in a red candle.  It remains stuck in the 16-18 region it's been stuck in for the last 10 sessions.  I don't see much fuel in the VIX chart pushing it higher right now.

And tonight all three futures are up by better than four tenths of a percent (at 1:30 AM EDT), and that is definitely non-trivial.  In fact, all of the indicators for the ES have now traveled completely from very overbought to very oversold, even more than the Dow indicators.  The RSI has actually bottomed and the short stochastic is ready to execute a bullish crossover.  And the ES bounced off its 40 day MA at 1307, also a bullish sign.

So there you have it: the specter of sky high oil prices draining cash from the economy abated (at least for now - I wouldn't be surprised to see the advance resume later this spring), at least some mumblings about a resolution to the Libya problem, no new sever damage from the latest Japan earthquake, the VIX stuck in the doldrums and the futures guiding higher.

Put it all together and whereas last night at this time I was moderately pessimistic, tonight I am moderately optimistic.  I'm still leaving the red trend arrow in place because we haven't seen an upturn yet, but I would not be surprised to see tomorrow close higher.

No trades today.

Looking for lower

Yesterday, I couldn't decide if the market was going to go up or down today. As it turns out, the market wasn't able to decide either. First the Dow went up, then it went down, finally ending higher by just a single point. In the process it created a long tall doji with a lower high and higher low than yesterday. Clearly today did nothing to wring the indecision out of the market. What it did do was bring the indicators a bit further off their overbought levels.

But the really interesting chart today was not the Dow, it was oil. Check out this daily chart of the June futures. You see here that oil had been in a pretty steady uptrend since the end of March. Until today. What's remarkable about this chart is not just that oil (finally) went lower, but that it put in a bearish engulfing pattern doing it. Today's red candle completely covering the span of yesterday's range is quite a bearish sign at least in the short term and I would expect to see oil go lower tomorrow.

Indeed after closing at 110.57 today, oil has been continuing lower in the overnight, hitting 109 just now at 1 AM EDT. This is also important because it puts oil back below the 110 level that Jim Cramer was getting so exercised over on his TV show last Friday (yes, I watch Cramer). I can only view this as being positive for stocks.

That said, the Dow's performance in recent days leaves a lot to be desired. The assault on the 12,450 level fizzled, and with today's close at 12,381, the 12,390 support level is now in serious question. In addition, all three futures are lower this evening by about half a percent. That is a significant level of decline that we can't ignore.

The VIX meanwhile closed at 16.6, the lower end of its recent daily ranges and just above its strong support level around 15.5. Thus the VIX continues to have more upside potential than downside. And notably, today's drop in the VIX was not accompanied by higher stock prices.

So all in all, I'm rather more bearish right now than I was last night and would not be surprised to see the market go lower tomorrow.

Trades

My two silver mining trades, MGN and GPL, after doing nicely yesterday, both got stopped out just above break-even today. Silver itself had its largest drop since February 24th and put in a bearish engulfing pattern that looked a lot like today's oil chart. I'll be watching to get back in at a lower level.

Meanwhile, I am now up to 33% in cash.  I'll discuss my reasons for this in a later post.

More mixed messages

I was wrong about Friday's action in the Dow.  We ended up with a 29 point decline which provides us with a bearish confirmation of the hanging man we saw Thursday.  On this basis, I'd say that we're going lower tomorrow.  Also, all of the daily indicators have peaked and are now headed lower, another bearish sign.

However, all three futures are actually up right now at 12:30 AM EDT with both the ES and YM up by 0.23%, and the NQ up 0.40%.  These are non-trivial numbers.  Also, the ES moved above its daily pivot which for Monday becomes 1326.  And the 12,390 support level on the Dow was tested on Friday but ultimately held.  And Friday's loss was on lower volume.

Also there is now news out of Libya that Col. Khadaffi has apparently agreed to a plan to end the fighting there (though I'll believe that when I see it).  That alone could account for the rising futures.  And oil, after a big run-up on Friday is actually down a bit in the overnight.

Meanwhile, the VIX on Friday jumped up to the top of its recent consolidation range to close at 17.87.  The 18 level is resistance for the VIX.  However, it still has more room to rise than to fall and that fact is bearish for stocks.

So there you have it - another night of mixed messages from the market.  I guess it all boils down to whether you want to believe the charts or the futures.  The charts suggest we're going lower tomorrow, the futures are guiding higher.  If the Libyan news proves true and oil goes lower, then we could move higher tomorrow.  But at this point, this is one of those times that's just too tough to call.  We'll just have to wait and see.

More of the same

Yesterday I had a vague feeling we might close lower today and that's just what happened, with the Dow losing 17 points. The intraday chart might look good, with the Dow erasing most of its early losses in a strong afternoon rally, but unfortunately, this created a hanging man candle and that is a classic bearish indicator.

However, we need some confirmation of the hanging man to call a top. Right now we're not getting much in the way of that from the futures with the ES and YM both up just 0.08% and the NQ actually down by 0.02% at 1:05 AM EDT. The ES had actually been rising all evening until exactly midnight when it abruptly revered course. Why? Who knows.

Our other favorite indicator, the VIX meanwhile is bumping along its support level around 17 and really seems to be unable to gain any traction. This is surprising considering the amount of bad news floating around right now: continuing war in Libya, a new earthquake in Japan, new oinking noises from the PIGS, and the threat of a government shutdown tomorrow night (although personally I view that as a piece of good news).

If all of that can't drive this market down more than today's 0.14% loss, it's difficult to make the bear case for tomorrow, hanging man or no hanging man.

Meanwhile oil continues it speculation-driven march to the stratosphere, closely replaying the insane summer run-up from 2008. Based on where we are now compared to then, it will take another 9 weeks before we hit the blow-off top at $147. I don't know what's so magical about that level, but it was the peak in 2008 and it will be significant resistance this time around. And I have no doubt we're going there again.

So that's the other piece of bad news. The market doesn't seem to care that oil has topped $111. We're now in one of these modes now where bad news just doesn't matter. In the space of less than a month, we've gone from a completely news driven market to a completely news-ignoring market. It never ceases to amaze me how that happens.

And I think that once again, the pivot will decide tomorrow's fate. We closed at 12,409 today; the pivot was 12,421. Tomorrow the pivot should be a bit higher. If we can break above that early in the session, then I think we close higher. OTOH, if we bounce off it and go lower, then the whole day will end lower. Watch the early morning trading after the usual initial noise burst subsides (I'll be sleeping) and see if that isn't what happens.

In the meantime, we're in just about the same place we were yesterday: limited downside to the VIX preventing much of a rise in stocks, and strong support at 12,390 (which was tested today but ultimately held) preventing much of a decline. So I'm looking for action constrained in the 12,390 to 12,450 range (yesterday's high) tomorrow.  My best personal guess is that we're going higher tomorrow.  That's all she wrote.

No trades today.

More range bound trading ahead

Yesterday I said I though we could go a little higher today and that's just what happened, with the Dow gaining 33 to close at 12,427.  In fact, nearly the entire day was above what is now the 12,390 support level and every day that goes by staying above that makes the support stronger.  And that number is right around the daily pivot (12,395) making it stronger still.  Also we note that the Dow volume has been increasing three days in a row now.  The fact that yesterday's doji resolved to the upside is also technically bullish.

Turning to the VIX, it tested its own support at 16.5 for the third time in four sessions, and it held, closing not much higher than that at 16.90 today.  This suggests that the VIX doesn't have much lower to go from here, implying that the short term upside for stocks may be limited.

Also on the downside, the futures are all running lower this evening at 1:20 AM EDT, off by 0.13% to 0.19%.  The negative bias was reinforced when the Bank of Japan news hit just after midnight Eastern.  And we are now exiting the historically bullish early part of April.

So overall, my feeling about tomorrow is about the same as it was last night for today.  Some mixed messages in the data and no strong forces guiding us in either direction.  To the contrary, we have a VIX indicating limited upside for stocks, and a strengthening support level at 12,390 indicating limited downside for stocks.

That all makes for another tough call.  My instinct right now says we may go a bit lower tomorrow but once again, I'm not looking for either large gains or declines.

Trades

Nothing in my trading account but today I unloaded my position in Clearwire (CLWR) that I held in my IRA for a small profit.  CLWR put in a hanging man today right at the top of its recent trading range after a big three day run-up.  It's looking ready to go lower tomorrow.

Crossroads again

Yesterday I had the feeling the Dow could go lower today and that's just what it did, giving up all of its intraday gains and then a bit more to close down just over 6 points.  In doing so it formed a doji, indicating indecision in the markets.  How will this resolve?  There's not much guidance from the VIX which continues to bump along the bottom at its support level around 17.  It formed a hanging man looking candle today but with so little trending going on there I don't really read anything into that.

I think that tonight we have three clues.

Clue 1: the futures, which are all higher by 0.2% to 0.3% at 1 AM.  We see that the ES in particular crossed over its daily pivot just before midnight and has been holding above it since then.

Clue 2:  the Dow closed today at 12,393 which means that what had been the February resistance is becoming support.

Clue 3: Indicators.  Although the stochastic and RSI remain broken in overbought territory, momentum and money flow have come down considerably off their recent highs.  Momentum has in fact turned positive and money flow has sunken to levels that suggest a bullish bias.

So that leaves us at sort of a crossroads.  The Dow doji suggests we could go either way tomorrow.  There are several indications that we might go higher but I don't see all that much gas in the tank to propel the move right now.  On the other hand, we have support after a fashion to block any moves lower.  So it's another tough call.  My bias says we're going higher, at least a little tomorrow, but I don't have much confidence in saying that.

Trades

Today I sold 100 shares of AOD out of the low price high yield portfolio, mostly for rebalancing, though AOD does seem to be a bit on the overbought side at the moment.  I then bought some MGN, Mines Management Inc., a silver play, at 2.96.   It closed today at 3.17.  Silver is just on fire and showing no signs of slowing down.  I've had a bunch of SLV in my IRA for years now and it has been the best performer in that portfolio.

I'm liking silver better than gold right now because it has attracted less attention.  I think it still has considerable upside.  You might want to check out this article http://seekingalpha.com/article/261413-jim-cramer-and-london-financial-times-now-touting-physical-silver?source=email_cramers_picks from Seeking Alpha recently making a strong case for the metal.

Maybe lower tomorrow, but Fed minutes will tell

Well the Dow daily pivot certainly was the key today. We opened just above it at 12,375 and aside from one brief dip below it at 2:30 PM, held above it all day. And importantly, we closed at 12,400, finally closing above the February high (the horizontal blue line in the chart).

This should signal the all-clear to advance further since there's no resistance now all the way back to the spring of 2008. But I'm not so sure. The pace of the rally from the depths of the Japan disaster has been slowing the past few days. And also note how volume has been declining for three days straight now even as the Dow has been climbing. And all three futures are lower at this hour (1:10 AM EDT) by 0.2 percent to a third of a percent for the NQ. And they've been trending lower since 7:30 this evening.

Meanwhile, the VIX is still trying to figure out where it's going. It rose today but did so on a red candle.  Although it has more room to go higher than it has to go lower from here, it doesn't really seem to have much steam behind it at these levels so there's not really much to learn from it tonight.

Oil meanwhile just continues to grind higher and basically seems to be replaying the spring of 2008 all over again.  If history repeats itself, we have about five more weeks of oil speculation before it tops out.  We'll see.

I'm inclined to say that the Dow could go lower tomorrow but since tomorrow is a day when the Fed minutes come out, there's no forecast tonight. I have no way of knowing what they're going to say, and what they say invariably drives the entire market regardless of whatever else may be going on at that time. So tonight is just going to be one of those watch and wait times.

The 8 Ball Says: Future Uncertain

Hmm - although the next three trading days in April are historically strong, I have my doubts about tomorrow.  On Friday, the Dow tried to crack the February high at 12,419 and was rejected.  As we've seen before, it often takes more than one try (and very often it takes three tries) to crack these kinds of resistance levels.  Also, the VIX closed at 17.4 on Friday and actually put in a green candle after bouncing off its support at 16.4.  And all three futures are lower right now (1:20 AM EDT), though not by much.  And more to the point, they're not really trending lower.  They're more sort of meandering about the chart.  And with no economic news coming out tomorrow, we won't have that to set the tone for the day.

So all in all, we're not getting any real strong signals in either direction which makes calling tomorrow somewhat problematic.  My best guess, and this is only a guess, is that we'll take another shot at the February highs and it will be rejected again.  But I'm not looking for any large moves tomorrow, either positive or negative.  In fact, we may be in for a few days of consolidation around these levels before the next push higher.  Nevertheless, the green swing trend arrow remains in place.

The key, as it is so often, will be the daily pivot.  On Friday it stood at 12,340.   We closed at 12,376.  Watch these two levels early tomorrow.  A break below the pivot will signal a lower close and vice-versa.

One item I did find interesting - on Friday afternoon, the bears did not knock 'em down into the close as  has been happening the past few days.  This is particularly interesting since one would expect the day traders to head for the exits before the weekend.  I'd call that something of a bullish sign.

BTW, how about my call last Thursday for Friday?  No April Fool's there - when you're right, you're right.

April 1st to go higher, no fooling

Yesterday I wrote that I thought the market would take a pause from the gains we'd seen the past few days and that's pretty much what happened today.  While I thought the Dow might end up a bit, it actually closed down just 31 points (though the Nasdaq did manage a small gain).

So that takes care of March.  Tomorrow is April 1st and I'm looking for the advance to resume.  According to The Stock Traders Alamanc, the Dow has been up 13 of the last 16 years on the first trading day in April.  And April as a whole is actually historically the strongest month of the year for the Dow.  And to top it all off, in pre-presidential election years, April gains are double, averaging 4.3%.

Technically, I see no reason why we can't go higher tomorrow.  The Dow took a stab at the 12,390 resistance level twice in the last two days and was rejected both times.  I've noticed that very often, the third time's the charm.  The indicators are all still in broken mode, looking overbought but out of predictive power.  Meanwhile the VIX put in  a hammer type candle today.  In fact it did that yesterday too.  Normally, I'd take that as a sign the VIX is ready to go higher.  However, the inability of the bears to cause a retreat when such signs seem to be in their favor indicates to me that fundamental economic forces are at work propping up prices.  Like the Fed and the tape, I don't want to be fighting that.

Finally, all three futures (ES, NQ, and YM) are up in the overnight at 1:10 AM EDT by 0.15% to 0.25%.  The ES remains in its rising regression trend channel.  The only negative I can see is that the Dow edged sideways out of its own RTC today, normally a bearish setup.  Whether this data point can trump the other signals remains to be seen, but my bets right now are for April 1st to go higher, and that's no fooling.

Another pause in the works

Yesterday I called for higher today and spoke of resistance at the 12,390 Dow level.  And that's just what we got.  After topping off at 12,383, the Dow pulled back a bit to close at 12,351.  The good news is that we handily cleared the 12,250 congestion level from earlier this month.  The bad news is that we're right back to the high reached on February 17th at which point the Dow's virtually continuous three month advance stalled.  However, we're not looking quite as overbought this time as back in February.  The indicators are of course all maxed out in overbought mode, but we've only been in that area for four days now, compared to nine the last time around.

Still, this level may be hard to breach.  It represents resistance going all the way back to early 2008, when the market was still in the early phases of its retreat from the all-time highs set in October 2007.  And historically the last day of March is not a good one for the Dow.

Turning to the VIX we see that although it was down today it has not yet reached its support level in the 16.50 neighborhood, implying that it has at least the potential to go lower still.  However, with the size of the gains from the last two days, I think the market may take another breather tomorrow, possibly registering a small gain.  I'm not looking for any major moves either up or down.  But I do think the advance will resume Friday, the first trading day of April.  In the meantime, the green swing trend arrow remains firmly in place.

Broken indicators portend higher

Last night I wasn't quite sure what to make of the mixed signals the market was giving.  The technical indicators were all showing quite overbought conditions but the futures were all up by fairly significant amounts.  Today's impressive 81 point gain in the Dow shows that the futures were correct and the indicators are now all broken.

There are many instance of this over the past year, where the indicators can all stay in oversold condition for days or weeks at a time while the market just continues higher.  We may be starting another such run now.  The fact that we closed above yesterday's high today at 12,279 and are now at the tippy top of the pre-Japan crash consolidation range is pretty bullish.

Tomorrow is historically not a good day in the market, but with the end of the month (and quarter) coming up, it's getting to be time for some window dressing.  The fact that the futures are once again up by over a third of a percent (the NQ is up nearly half a percent) this late at night (2 AM EDT) is encouraging for tomorrow.Today's close also keeps us within the rising regression trend channel begun at the trough of the Japan crisis on March 17th.  That's also bullish.

After we broke above the daily pivot at 10:20 AM today, it was all uphill from there.  Look for more of the same tomorrow.  From here there is no more meaningful resistance until Dow 12,390.

Absent any new disasters out of Libya, Japan, the PIGS, or any other new catastrophe, I'd be looking for higher stock prices tomorrow.

Outlook uncertain

Well, the 12,220-12,250 area I talked about as being resistance yesterday certainly acted that way today.  After looking like my call was going to be wrong most of the day, the Dow took a dive in the final half hour and redeemed me for a 23 point loss.  At this point I'd say that purely on a technical basis it looks like we're in for more of the same tomorrow, both from the Dow chart and the VIX chart.

But the futures are all up right now.  ES, NQ, and YM are up 0.36%, 0.44%, and 0.31% respectively at 2 AM EDT.  This is not the sort of behavior one would expect from a market that's looking to go lower.  And I really have to wonder about just what caused that sudden breakdown at 3:30 this afternoon.

I think the key tomorrow will be the daily pivot, which was 12,217 today.  Any action that stays below this number is bearish.  But if we can get above this level and then break above 12,250 then I'd definitely bet on a higher close.  But there's just enough uncertainty in the air that I'm not making a call tonight either way.  The indicators are saying one thing and the futures are saying another.  We'll just have to see what develops tomorrow.

Another pause

After last week's considerable gains, it's starting to look like we're running out of steam, at least in the short term, meaning the early part of the coming week. Today I bring you once again the daily VIX chart because it seems to have more predictive power at the moment than the Dow or S&P charts.

After six straight days of declines, the VIX has now traveled all the way from its upper Bollinger band to near the lower band. More importantly, on Friday it put in a very tall doji candle in the style of a hammer. Add to this the fact that all of the indicators are now in oversold territory and it looks like the VIX is poised to go higher tomorrow.

That would imply lower stock prices but I guess we'll just have to wait and see. The last few days of March are historically weak anyway and the futures are essentially flat right now. On top of that, on Friday the Dow closed at 12221, right at the top of the consolidation range from the beginning of March and that is now its resistance level. And finally, the Dow indicators are now all looking overbought.

So bottom line is that I'm not looking for much in the way of gains over the next couple of days and I would not be surprised to see tomorrow close lower.

Looking for one more up day

Yesterday I wrote

"there's more room for stocks to run tomorrow. "

and run they did indeed today, to the tune of a nice 84 point advance in the Dow to close at 12,170. This puts us back into the center of the consolidation range from earlier this month with no resistance now until the 12,220 - 12,250 area.

We also remain in the upper half of the new ascending RTC that began on the 16th. And we're also back inside the longer term RTC (the rising red line) going all the way back to last June. Meanwhile notice how the indicators have all risen considerably off their oversold lows of a week ago but are not quite yet reading overbought.  Soon, but not now.

In addition, all three futures are up around a third of a percent at this hour (1:20 AM EDT) and have been trending up fairly steadily since around 8:30 this evening. And thankfully there's no new catastrophes on the world stage this evening, though that can obviously change at any time. The market seems to be ignoring the continuing rise in oil prices (though I think that may be in for a decline tomorrow) and the news out of Libya tonight seemed to be more about how much money this is costing us than how angry everyone there is at the US. (A million bucks for one cruise missile? Memo to self, buy stock in whoever makes these things).

Finally, the VIX continued its decline, closing at 18 even. The VIX indicators are starting to look oversold (and more oversold than the Dow indicators look overbought), but its lower Bollinger band isn't until 15.5, a number which also represents support going back almost a year. So I'm thinking the VIX has at least one, possibly two more days to go lower, implying that we're in for at least one more day higher in the market tomorrow. This is also historically a good market day.  That's all she wrote.

Trades

No trades today. I played hooky this afternoon from the market and took advantage of an early spring cold snap to get in one last afternoon of skiing.

I'm looking at gold again as a longer term play. Despite a good week this week, I think gold is going lower in the near term. I'll be waiting for a buying opportunity there. In the meantime, Ford just motored away from me today gaining over 5% while I was left standing in the dust at the side of the road. Sometimes that just happens.  One of my rules is not to chase, so I didn't.

And still no explanation for that sudden mysterious 16% jump in OMEX yesterday. It only closed 4 cents lower today which makes me believe that something good must be brewing over there, since none of yesterday's buyers were willing to jump ship today.  Very mysterious.

Important resistance cleared

Watching the market intraday this morning, I thought my prediction of a lower close was going to come true.  Until about 11:30 when things started to picked up and we closed at 12,086 for a 67 point gain.  I had pinned my hopes on the VIX finding support at its 40 day MA, but of course that didn't happen.  The VIX just dumped right through that level though and the Dow, after some hesitation at the 12,050 resistance around lunch time, just kept on rising.  Anyway, I'm never sad to be wrong about a bearish call.

I find today's results significant because we have now entirely erased the Japanese earthquake market crater and are now back to the bottom of a trading range that lasted from February 23rd to March 9th. Now that the market has broken two important levels ( the VIX support and Dow resistance) and totally ignored the continuing instability in the Middle East along with a resumption of rising oil prices, I'm thinking there's more room for stocks to run tomorrow.  The next two days are historically bullish anyway, according to The Stock Traders Almanac.  And the weekly chart is shaping up even more bullish than the daily chart.  We'll see.

Trades

Today I looked for a new entry point to get back into Ford, but couldn't find one. Instead I bought some Intel (INTC) at 20.33. But my biggest surprise was OMEX, which suddenly took off around 10:15 AM and finished the day with an almost 16% gain. What's really odd is that I couldn't find any news about it anywhere or any reason for the move, which was its largest gain in over a year. Did they suddenly discover a new shipwreck loaded with gold and silver coins?  Who knows.  But I was sure glad I added to my position when the market was on sale last week.  It paid off nicely today.

Gains unlikely tomorrow

Yesterday I wrote

"the market may take a breather tomorrow. It now has support at 12,000 and resistance at 12,049. So I'm looking for a small range day tomorrow, with resumed upside later on this week."

and sure enough, that's exactly what we got today. The high for the day was 12,051 and the low was 12,003, ending with a scant 18 point loss. But today I'm going to put up a chart of the daily VIX rather than the Dow. There's not much we can learn from the Dow chart today - just a small spinning top sitting at the top of a mountain of three big green candles. The VIX chart is a lot more interesting today.

Today's small range and low volume action indicates renewed uncertainty in the market. The VIX may provide some clues to tomorrow's direction

Notice how we did indeed move lower in the VIX today, pretty much as you'd expect. However, today's drop was quite small compared to yesterday. And it stopped right on the 40 day moving average. This level has been providing support to the VIX for months now. In addition, the RSI and momentum indicators took a little hook up today. And the stochastic is entering oversold territory. Finally, the VIX is now right back in the middle of a region it has spent a lot of time in for a month now.

Based on this, I would not be surprised to see the VIX move higher tomorrow. Higher VIX implies lower stocks.

Supporting this is the fact that all three futures, ES, NQ, and YM are down right now (1:15 AM EDT) by 0.17%, 0.23% and 0.16% respectively. And ES broke below its daily pivot at 7:30 this evening. I note also that while the Dow did close over 12,000, the S&P was unable to recapture 1300 today.

Furthermore, while the news wire is fairly quiet this evening, crude oil futures are back on the rise again in the overnight. So all in all, I'm not looking for any advances in the market tomorrow and I would not be surprised to see us close back under 12,000 again.

Numbers to watch tomorrow

12,000 - psychological support

11,992 - this level is not only today's daily pivot, but also the 40 day MA. Below this is bearish

11,985 - minor support from back in January. 

11,938 - the 25% Fibonacci retracement of the last three days' gains.

And on the other side,

12,050 - the pre-earthquake crash level, now resistance. Above this is bullish.

Trades

Today I got stopped out of my Ford trade at break even.  I'll be trying to get back in again soon at a lower level.

Perhaps a pause

Yesterday I was fairly sure we were going higher today, but I didn't really think we'd see the monster 178 point pop we got in the Dow. But I'll still take it :-) So there's a bunch of interesting stuff going on in today's daily Dow chart.  Check it out.

First of all, we reclaimed the 12,000 mark and crossed back up over the 40 day MA (at 11,989). Even more importantly, I think, is that we crossed up above the daily pivot at 11,854 and held. All of these points are bullish. In fact, today's intraday chart looked like a mirror image of the awful action last week. 90% of the entire day's action was over in the first two minutes of trading, only this time it was to the upside.

Notice also how the RTC works. Look at the steep descending RTC. Yesterday we broke out the right edge of that. That was the bullish setup. Todays gain was the confirming bullish trigger.However, look at the volume - much lower than yesterday.

Next, take a look at the Fibonacci retracement levels I've drawn in going from the high on February 18th to the low last week. I've never been a huge fan of Fibonacci because I don't really understand why it should work, but it sure seems to. Notice how today's high, 12,078, almost exactly hit the 0.618 Fibonacci retracement level. That's going to be an important number to watch tomorrow.

Then there's our friend the VIX. It gapped down in a big way today, down nearly 16% to close at 20.61. In so doing, it fell right through both its 200 day MA and its daily pivot. It is now back in the middle of its Bollinger band range, and the area where it has spent much of the last month. It definitely still has room to go lower.

Moving on to the futures, all three of ES, NQ, and YM are down at the moment (1:20 AM EDT) by about a quarter of a percent.

And finally there's the news, or rather the lack thereof. On this evening's news wire, I note that neither Libya nor Japan appear in the top stories on the wire at this hour.

So let's wrap it up. On the plus side, we have positive chart action that broke through important resistance levels, a bullish trigger from the RTC, positive VIX action (positive for stocks, that is), and positive "no news is good news" action on the international front.

On the minus side we have slightly negative action from the futures and declining volume. My net take on this is that after such a large three day run, and the big move up today, the market may take a breather tomorrow. It now has support at 12,000 and resistance at 12,049. So I'm looking for a small range day tomorrow, with resumed upside later on this week.

Trades

Last Thursday and Friday, I took advantage of the sale the market threw to pick up a little more OMEX, ARR, and CIM. Those all proved to be good moves. In a stupid move, I bought some Citibank (C) at 4.53. It closed today at 4.43 after news of the upcoming reverse split.

I don't normally mention my IRA here, but I also bought some O (Realty Income Corp) at 31.72 as a longer term investment there.

Threading the needle

Lately, it seems as if we're walking through a veritable market minefield of various catastrophes and calamities, any one of which has the potential to send the market bus careening off a cliff.

The latest one is the bizarre new Mideast war on Libya. We are told that the object is not to get rid of Col. Khadaffi. This is sort of like Babe Ruth stepping up to the plate and instead of pointing to a spot out in left field, he announces that the object isn't to win the game, he's just there to play some ball. I'm just wondering, if the object isn't to get rid of the esteemed dictator, then what the heck's going on? The current course of dropping bombs on antiaircraft guns looks like all it will do is prolong an already uncertain civil war.  As far as I'm concerned, either go long or go home.

And as far as I can tell, the opposition consists largely of young guys riding around in beat up Toyota pickups and shooting their AK's into the air. They don't inspire a whole lot of confidence in a quick and decisive victory.

On the positive side, it appears that the Japanese have successfully averted nuclear Armageddon by reconnecting their reactors to electric power. From what I read, if it can be believed, reactors nos. 1 and 2 are now reconnected and doing OK, nos. 5 and 6 have been successfully shut down, and only nos. 3 and 4 are still in question. In any case, this catastrophe seems to be rapidly falling over the event horizon as it is not the headline story in any of the news sites I've visited this weekend.

So given all this uncertainty, the only indicator we have as of Sunday evening for where we might be headed tomorrow is the futures. And somewhat to my surprise it's actually not looking too bad right now (8:30 PM EDT). All three futures are up about a third of a percent. Given this and the considerable retreat of the VIX last Friday from extremely overbought readings, I am right now cautiously optimistic for stocks tomorrow. This of course assumes that Col. K. doesn't do something stupid like setting all of his oil wells on fire or something.

In any case, the Dow chart above shows that we have exited the descending RTC channel and that in itself is a bullish trigger.  Also, note how all of the indicators have hooked upward from highly oversold levels.  Also bullish.

Performance

It's been a rough month for me. I am actually down four weeks in a row now, something that hasn't happened since I can't remember when. Minus 0.17%, 1.32%, 1.36%, and last week 1.68%. Ouch! However, these are unrealized losses and I'm still up 3.47% year to date, compared to the Dow's 2.42%. I've been hampered in my ability to play the short side on a swing basis because of all of the volatility in the market. When 90% of the day's movement happens in the first minute of trading, it's kind of tough to capitalize on it.

The reversal, at last

The wearin' o' the green

Just in time for St. Patrick's Day, today brought us a welcome sea of green (market heat map courtesy of finviz.com).  There's also an important lesson here in having the courage of your convictions.  After being wrong abut the reversal I just knew had to come, for two days in a row, by last night I just couldn't bring myself to call a bottom.  I did mention though that every time I got the itch to throw in the towel and sell sell sell, that the market always reversed the next day.

And sure enough if that isn't exactly what happened today.  That's the main reason I did not go short or sell everything yesterday.  And now I'm so glad I didn't.

Futures

Moving on to the daily YM futures, we can see a classic parabolic swan dive ending with a big hammer (today's candle).  Since it's now 1:40 AM, the rightmost candle is actually the overnight and look at how that's starting off.  YM is up 0.81%.  And ES is up even more - 0.87%.

This pop also takes us well above the right hand edge of the descending RTC established on March 9th.  This is a bullish setup and there is only a 5% chance that this candle could be part of the downtrend.  Today's G7 intervention in the yen and news of electric power becoming available to run the cooling pumps at the damaged reactors in Japan should help out stocks tomorrow.  Like I said yesterday, it's the temperature in the reactors that's driving the market now.

Pivots

Further good news is that the Dow broke above its daily pivot today and never looked back.  And the VIX broke under its own pivot with a big gap-down at the open.  The only downside at the moment is that tomorrow is a triple witching day and that can lead to lots of volatility.

It's too soon to say if today's gain was just a relief rally of the end of the recent downtrend.  We need to see how next Monday plays out for that.  At least unless some reactor vaporizes in a mushroom cloud tomorrow, I don't see much chance of another huge down day tomorrow  like we've seen the past few days.

A political aside

The only other thing worth watching is our old friend oil.  It's been drifting higher in the overnight.  However, we seem to be back in a positive correlation between oil and the market, so that's not necessarily a bad sign.  Hopefully we can look for some more stability in the Middle East because Col. Khadaffi seems to be on the verge of retaking control of Libya.

I can't say that I'm a big fan of Khadaffi, the man who sent one of his agents to bring down a Pan Am 747 in 1988, but I have no particular sympathy for his opponents either.  I have no doubt that they are the same people who were cheering and dancing in the streets upon said agent's disgusting return to Libya in 2009 as some sort of national hero after being released by the craven Scots on "medical grounds", and where he underwent a miraculous recovery from his supposedly terminal condition.

I don't think it's as important who runs Libya as long as they stop fighting.  Assuming the UN continues sitting on its hands over the proposed no-fly zone and President Nerobama continues fiddling with his basketball brackets while the world burns, Khadaffi might have the time he needs to get back in the driver's seat over there.

Trades

No trades today but with the VIX back under 30, I'm back from my short vacation.  I stuck with my Ford play through its dip yesterday.  OMEX meanwhile seems to be diving like its Zeus underwater robot.  It's nearing some longer term support around today's close of 2.33 so I'll just keep watching it.

OK, I finally got it

No need to put up any charts tonight.  I may be a bit slow, but I think I have it figured out, finally.  The market is now 100% driven only by the temperature in Japan's nuclear reactor cores.  Temperature up, market down.  Simple as that.  Nothing else matters anymore.  Earnings, yield, sales, supply and demand, forget it.  The entire  fate of the global financial system now hinges solely on three overheated reactors. halfway around the world.

If there's yet another news report of "another meltdown" tomorrow morning, whether it's true or not, look for another 300 point drop in the Dow.  When the reactors are all finally secured, and one has to believe they eventually will be, then the market will go back up.

I'm not even going to bother pointing out any of the positive technical signs I see right now.  Three times bitten, four times shy.  But I'm also definitely not throwing in the towel either.  Every single time I've done this in the past, the market was up big time the very next day.  I'm not falling for that one again.

And whenever the VIX hits 30, I always go on vacation.  That's one of my rules.  I'll be back when some semblance of sanity returns to the stock market.  Life's too short to play this bizarre Kafkaesque game.

Good luck to all you traders out there and deepest sympathies to all the victims of the earthquake and tsunami.

Finally some clarity?

Today sure felt like a washout low, featuring an incredible nearly 300 point dive right off the open, followed by a fairly steady retracement the rest of the day. The net result was a pretty decent hammer candle, similar to yesterday's only much larger.

I don't know it this "double hammer" is even an official pattern, but it's pretty unusual. I went over the last 10 years of daily Dow charts and only found four other instances of it. In all four cases, the following day was higher. And the fast stochastic has now done a bullish crossover - that's always a good indicator.

In addition, this evening (at 1:30 AM EDT) the ES and NQ are actually up for a change, +0.14% and 0.11% respectively. And as I write, the YM just turned positive too.  And even the Nikkei is up by over 3.5% now.

Also, the VIX today executed a pretty amazing pattern of its own today, putting in a huge gap up hanging man that broke way above the upper Bollinger band. I looked at the daily VIX back to 2003 and only found four other instances of something like this. In three of the four, the VIX fell the next day. In the fourth case, it fell a day later.

Now I know that what few readers I might still have left are probably shaking their heads by this point, because I've said it a couple of times already and been very very wrong but by gosh, it sure looks to me like we're headed higher tomorrow.

Trades

No trades today, but speaking of going higher, check out this textbook chart. This is Ford. Three important  things happened together here today:

first it broke back above its 200 day MA in a convincing manner, always a bullish sign,

second, it broke up over its descending regression trend channel, a bullish setup,

and third, it put in a huge bullish engulfing pattern that not only spanned yesterday's range, but the five days before that too.

I'm about as certain as I can get this one is going higher. Disclaimer: I'm long F and not planning on selling anytime soon.

Just plain wrong

Wow, was I ever wrong about today.  All the signs seemed to be lining up for an advance, and yet we ended up with a 51 point drop in the Dow.  On top of that, as of right now (1:15 AM EDT) we are staring at an appalling 2.08% decline in the ES futures, for no reason I can see other than the fact that the Nikkei closed down a whopping 12%.  While the Japanese certainly have good reasons for selling off their market, I'm afraid I just don't get the connection that much to the US market.  The NQ and YM are down by almost as much as ES.  It's looking to me like a massive panic type reaction and that's never good.

The only hope I can see right now is that the futures sell-off seems to have stopped around midnight at the 1259 level in the ES, which is the January support.  ES has now bounced back to 1270.  If this trend can continue, today's candle will be a classic hammer and that is a powerful reversal signal.  Assuming technicals still mean anything anymore.

If not, the next support levels are 1260, 1250, 1235, and 1215.  Below that, 1192 and 1174.  Oil is back below $100 but the oil/market correlation seems to be changing again.  Whereas we've been in an inverse correlation, lately oil is trading with the market.  I'm not sure oil is leading the market right now.

The VIX meanwhile was rejected by its 200 day MA once again and put in a dark cloud cover.  I really hate to sound like one of these people who keep calling for something to happen because eventually you're going to be right, but I don't see how the market can go much lower without the VIX heading higher.

However, with all the turmoil going on right now in the world, and so much stuff not making sense to me I'm going to have to take a break.  I have no clue where this market is going to go and I'm not even going to try.  All I'll do is turn the swing trend arrow to red and call it a day.  Maybe tomorrow will provide some clarity.

Trades

Today I bought 100 shares of Ford (F) at 14.31; it closed at 14.29.  My OMEX trade at least did gain a bit today, closing up 6.45%.  There should be a lot more buying opportunities when the bottom gets put in.

At a crossroads

Last week featured some pretty volatile action in the Dow, including that awful Thursday dump. Tonight I want to put up the weekly YM Dow futures chart. You can see that we are now at a crossroads.

The RTC

We're sitting right now at the bottom edge of the rising regression trend channel that goes back to the end of August. This point is literally at the crossroads of a second descending RTC going back to February 21st.

The last time we were in such a situation was the last week of last November. Not only does the chart look similar, but the indicators are all in the same position as they were back then. That time, the decline was halted right around the same relative spot we find ourselves in now. Any further decline from here would make me short term bearish.

The VIX

So which is it? The VIX hit its upper weekly Bollinger band last week. Then it took a big fall on Friday after hitting its 200 day MA. The VIX always has trouble breaking above both of those. In addition, the VIX fell further on Friday proportionally than the Dow rose. My guess is that this was due to the terrible situation in Japan. It's difficult to get accurate news on the true situation there, but from what I can find out, it looks like, as bad as it is (and it is certainly a horrible tragedy) it's still not the actual end of the entire world just yet. It looks to me that the VIX has room to go lower this coming week and few incentives technically to go higher, implying higher stock prices.

Oil

Oil definitely put in at least a short term top on March 7th and has been declining ever since. The impact of the earthquake on oil isn't entirely clear, though my guess is that demand in Japan will fall at least until the damage to the infrastructure is repaired. And indeed oil in the overnight is headed lower right now and holding under $100 a barrel. Lower oil also implies higher stocks these days.

Futures

The Big Three (ES, NQ, and YM) are all negative right now (1:15 AM EDT) by just over a third of a percent. However, most of that came from a gap down at the open. The evening chart bottomed around 6:35 PM and has been rising since then. Also, they have now broken above their respective daily pivots, a bullish sign. And Friday's candles of both ES and YM look like hammers to me, a further bullish sign.

History

We are about to enter what The Stock Traders Almanac calls the "sweet spot" of March, historically the strongest period of the month. The Dow has gone up in 17 of the last 23 years on the Monday of triple witching. So history is on our side for tomorrow.

Numbers to watch tomorrow

12,056: The Dow's daily pivot on Friday. Breaking over this was bullish. That number now becomes support.  Watch the action around tomorrow's daily pivot.  That will be the key to the rest of the day.

12,000: The psychological support. Don't underestimate the importance of this round number. It has held off no fewer than three bearish assaults in the last 30 days.

12,060: What was support at the end of February is now resistance. Breaking above this would be bullish. We're only 16 points from there right now.

The play at the plate

Summing up all of the above observations, I see a lot of short term bullish factors, some decent support, and a lack of selling pressure. The fact that the world has had a whole weekend to assess the situation in Japan is helpful to the market too. And interestingly, although there was the usual finally 30 minute dip on Friday afternoon as the day traders headed out the door, there was not a wide scale panic for the exits.

So all in all, I'm actually expecting the market to end at least a bit higher tomorrow.

The triangle resolved

Two days ago I wrote about the symmetrical triangle pattern we were seeing:

 "These triangle patterns are like springs that get compressed more and more as the days go by.  When they pop, they can go big."

Well this one blew up today, big time.  Unfortunately, it went in the opposite direction I thought it would. I knew that these patterns tend to exit in the same direction as they entered. My mistake was in assuming the entry was from the longer term uptrend you can follow from the left edge of this daily Dow chart. However, the triangle wasn't really fully established until March 3rd, and a triangle there comes in from below.

So anyway, the triangle is now resolved and we have now broken below the center of the ascending regression trend channel that goes back to last June (though we still have not broken below it yet, even after today's horrible 228 point dive).

I'm showing the weekly chart here so you can see for yourself. The current situation has happened twice since last June. Once in the first three weeks of last November and before that in the middle of last August. And the distance between each of these was about the same amount of time: 10 weeks from August to November and then 12 weeks from November to the present.

The look of this pattern, plus the look of the weekly stochastic suggests to me that this is not in fact the start of the next Great Depression. That said, I'm not looking for much improvement tomorrow. The futures are all down at ;east half a percent again this evening (1:30 AM EST) and there's more bad economic news out of China, this time about inflation (though it's not clear to me how much one can trust anything the Chinese say). Also, the last two times we broke under the center of the long term RTC, it took about a week to recover.

And even though the VIX finally moved out of the center of its recent range today, it still has more room to go higher tomorrow. It closed at 21.88 today and the upper Bollinger band is at 23.17. The only thing in the way is its 200 day MA at 21.92. That might be key, since five of the last six times the VIX approached the 200 MA from below, it was rejected. The one exception was last May when the whole PIGS/the world is ending thing broke.

If the VIX cannot advance tomorrow, that would suggest that any further market declines will be limited. On the other hand, we did break the 12K support level and the S&P broke it 1300 support today. However, the point we closed at today, 11,985 is in fact another support level from the last week of January. Also, note that we are now further from the daily pivot (at 12,209) than we've been at any time since last December 1st. And we also hit the lower Bollinger band in the Dow today too

However, I'm still not going to put up the red swing trend arrow because even a massive one day drop does not constitute a trend, and the action up til now was anything but a trend. I even tried fitting a regression to the recent action but the Pearson coefficient was too low to be meaningful.

I will say that I just hate this sort of market. 90% of the carnage was over in the first two minutes of trading this morning. And even as of late last night it wasn't at all clear that we were in for this so there was no real way to prepare for it. I though we might go lower, but like the Spanish Inquisition, I wasn't expecting this. I simply don't know how to make money in an environment like this. My only consolation at this point is that I have a lot of cash on the sidelines and I'm ready to go shopping when the all-clear sounds.


Bottom line, look for a small range day tomorrow with limited downside. Watch what the VIX does around that 200 MA - that will be the key to tomorrow.

Squeezing the triangle

Today the Dow put in a classic doji ending just about where it began but not until after a real sawtooth of an intraday chart featuring no fewer than seven distinct tops and bottoms. This is not inconsistent with the developing triangle pattern we're seeing. However, since oil is still the King, we take a look at that daily chart for a clue as to where the market may go tomorrow. The indicators are now all at levels about as oversold as they ever get. Not only that they have peaked and started to roll over.

Of particular interest is that oil has had two consecutive down days, something it has not seen since the middle of last month.  And today's loss brought it out of the rising regression trend channel that begain on March 11st.  That is a bearish trigger for oil.  It has mostly been meandering around in the overnight so far, though in the last few minutes (just before 1:30 AM EST) it suddenly rose.  However, I see no particular reasoon for this on the news wire, so that just may be one of those "who knows" things.

On the other hand, the futures have been guiding down all evening and are all down by about half a percent right now, a number that is definitely non-trivial.  There's again no guidance from the VIX which remains stuck in no-man's land.  There is some news out tonight about Chinese exports, but how and if that affects stocks tomorrow is anybody's guess.

In fact, that about sums it up - I have no idea where the market is going tomorrow.  The inverse oil/market relationship suggests stocks may go higher, but the futures are pointing lower.  And given that we're near the top of the recent trading range, that alone might be cause to imagine we're going lower tomorrow.  But there's really just no clear direction tonight.

About the only thing I can think of is to watch the daily pivot which was12,179 today.  Tomorrow it should be a bit higher.  Watch for a break under that - that would be bearish.

No trades today.  My OMEX trade from yesterday returned all of one penny to me today, but I'm still liking its daily chart.  We'll let this one cook a while longer.

Coiling the spring

Sometimes you're wrong, sometimes you're right. Today I was very right. Last night King Oil told me to put on my long hat and today the Dow rose 124 points. The central line of the rising regression trend channel held up nicely too.

And I noticed something interesting today. It looks to me like the Dow is now forming a symmetrical triangle pattern. I've drawn in the other leg of the triangle in this daily Dow chart. If this holds true, then tomorrow we should see a narrower range than today and bounded by both of these lines. It looks like this triangle should resolve itself within the next four days. We'll be watching for increased volume. When the breakout comes, it could be dramatic.

These triangle patterns are like springs that get compressed more and more as the days go by.  When they pop, they can go big.  And since the breakout is most often in the direction of the existing trend, and the existing trend going into this triangle was up, my bets are that we could see a big up day in the next few days.

Tonight, there's not much guidance from the VIX which today continued  its indecisive trip up and down (as led by Puck no doubt) in the middle of its Bollinger band range. And the futures are all meandering pretty much nowhere themselves right now (at 1 AM EST), with all three being down just a hair.

The only real pointer for tomorrow's direction right now seems to come from oil. Oil futures have been in a declining channel all evening. And since we have been in an inverse oil/market correlation since the end of January, this implies higher stock prices tomorrow.  But then we have this upper range limit right around today's close. And there's some significant oil-related economic news coming out tomorrow at 10 AM (crude inventories), so the day traders will want to be vigilant for that. All in all, I'd look for a smaller range day tomorrow than today, possibly starting off lower and ending around today's close or a tad higher.  That's about all I got tonight.

Numbers to watch tomorrow

12,125: Today's daily pivot (tomorrow's not available yet). Today we crossed above this number and never looked back. More of the same is possible tomorrow.

This number is also the lower edge of the symmetrical triangle. I'd expect it to provide support tomorrow.

12,210: The upper edge of the symmetrical triangle. This number is close to last month's resistance area too and has proven to be tough to crack since we dropped below it on February 22nd.

12,125: The lower edge of the symmetrical triangle. I'd expect this number to provide support tomorrow.

Trades

Today, I bought a small amount of my favorite little spec play OMEX, Odyssey Marine, the Treasure Quest guys, at 2.67.  It has pulled back a lot since its high last month and put in a doji on unusually high volume today.

Up and down

"Up and down, up and down,
I will lead them up and down"

Puck, Midsummer Night's Dream, III, 2

Hah, you always thought that impish Puck was talking about Hermia and Lysander, right? Heck no, he was talking about the stock market! Just look at the daily Dow chart. From right to left, two days down, one day up, one day nowhere, one day down, two days up, etc., etc.

Even intraday today, up nicely at the open, then down over 100 points, then back up in the afternoon, then down again into the close. I was down almost 0.9% right after lunch, but managed to finish the day with a loss of just 0.17%.

No rhyme or reason, just up and down, up and down. There is just one thing that makes sense here. Notice how the low of every single one of the last four sessions has bounced off the central line of the regression trend channel. OK, today it was the close, not the low, but we at least are seeing consistently higher lows since March 3rd. And oil was up again today. So that inverse relationship to the market is continuing, as I mentioned in my last post.

Whither oil?

And speaking of oil, while the oil futures continued higher today, I note that the XOI, the companies involved with oil, have put in two fairly large consecutive red candles, something that hasn't happened since last August. Oil itself went lower right after that back then. Also, this evening we have word that Kuwait, the UAE, and Nigeria may bump their output to offset the loss of Libyan oil.

The effect on crude futures was immediate and dramatic, to say the least. Just after midnight, or about an hour ago, the CL futures fell off a cliff. I've never put up a daily chart of CL in 5 minute bars before, but this one is worth looking at. Check it out.In fact, in this one day chart, you can see that CL wasn't feeling too healthy most of the day. And we know what that means, right? That's right, oil down, stocks up tomorrow. Also, CL put in a gravestone doji in regular trading today, a bearish sign.

The other indicators

Now let's check out the market futures. Right now (1:25 AM EST), ES is up nearly half a percent, the largest gain I've seen at the time of night in a while. NQ and YM are also up by almost as much. And they've been moving up pretty steadily all evening. This also looks bullish for tomorrow.

The only non-confirmation is from our friend the VIX, which remains firmly in Puck's grasp and is just bouncing up and down in the middle of its Bollinger band range. I know of no way to tell where it may be headed next. But the other signs tonight look pretty convincing to me.

It's not the start of a trend, but I think there's enough here to warrant reaching for the long hat for Tuesday.

One final note on oil

Much is being made right now about how the unrest in Libya could become a civil war that could last weeks or even months. Well, to me it already looks like a civil war, and it might last years. The big problem is Libya's geography. Rebels control the east, Khadaffi controls the west. In the middle is a vast expanse of nothing. Remember what happened the last time two armies decided to duke it out in northern Africa? Rommel and Montgomery spent the better part of 1941 and 42 chasing each other in and out of Libya.

So unless someone can get to the Infernal Colonel, this mess may go on for quite some time. I don't think oil is done going up just yet, but it looks like some of the speculators may be taking a few profits tomorrow before gearing up for the final push to the blow-off top that is surely coming in a few months.

Numbers to watch tomorrow

12,070: near-term support. A break under this would be bearish. I'm not expecting this.

12,120: this is tomorrow's RTC support level, the one that has been honored the last four sessions in a row.

12,173: the daily pivot. Climbing above this will be a bullish sign. Actually, that's today's pivot. Tomorrow's will be lower. I would not be surprised to see this level taken out early.

12,250: the mini-resistance level established last month.

12,000: the strong psychological support floor.

No trades today. I'm still waiting for the dust to settle.

What fools these mortals be!

Monday Outlook

This market is as hard to read as any I've seen in years. The only good thing I can find right now is that the uptrend that goes all the way back to last July is still completely intact, as you can see in this weekly Dow chart. And although we had some bad daily declines last week, overall the week ended with a small advance, and that came on higher volume than the big decline of the week before.

That said, there's no guidance from the VIX right now which is hovering in the middle of its Bollinger band range. Oil, on the other hand shows no signs of retreat and as I showed in my last post, oil has been in an inverse correlation to the market since the end of January, and that correlation is getting more pronounced. I think a lot will hinge tomorrow on the market's reaction to the announcement this weekend about possibly releasing oil from the Strategic Petroleum Reserve. If that weakens oil, the market should react positively. And historically, we are entering the middle of March, which is the best part of the month historically.

But for the time being, all three futures are down (1 AM EST). ES and NQ are both down by just over a third of a percent, so that's not very encouraging. Beyond that, I admit I was wrong about last Friday and I don't have a real good feel for where we're going tomorrow.

Important numbers to watch for tomorrow

12,100, the center of the RTC. The low for the Dow on Friday was 12,079, exactly that same point on this rising line for that day. A break below this is bearish, above is bullish.

12,203, the Dow daily pivot. If we can get over this, then bullish. Hitting this level and reversing would be bearish.

12,250, the most recent resistance level in the Dow established last month.

And of course, 12,000 on the other end, the prime psychological support.

Performance

Although the Dow gained slightly last week, it was not a good week for me. I lost 1.32%. It was a week that just did not suit my style and my attempts to work around this only made it worse. However, the damage could have been worse I suppose and I'm still up 6.69% year-to-date, compared to the Dow's 5.11%. We'll see what this week brings.

Does rising oil make the market fall?

OK, now that I've gotten my oil rant out of my system, it's time to take a more analytical look at the situation. I'm going to do the same thing I did with the VIX last month - look for correlations between the market and the price of oil. Does rising oil really make the market go down? Let's see. First of all, here's a chart of crude oil futures (the CL M1) in red, for the last 300 days, 12/18/09 through 3/4/11 alongside the Dow (in blue). The Dow values have been divided by 1000 to make them scale nicely. At first glance, it sure looks like there's actually a high positive correlation between the market and the price of oil. Oil up, market up, and vice versa.

Now let's do a cross covariance of oil and the Dow. Yup, pretty much what you'd expect from looking at the raw data. There is actually a strong positive correlation in the sample period between the price of oil and the price of the market. Here's the chart. Recall that the halfway point of the x-axis represents the point in time where both charts are completely lined up.

Now let's do the same thing, but on just this past month of trading. Here are the last 20 days of the Dow vs. CL. Whoa! Almost the exact opposite. Ignoring the slope of the curve for the moment, we see that what we have here is a high negative correlation: oil up, market down, and vice-versa. So sometimes oil and the market correlate but other times they don't. It might be useful to know when this flip-flop happens.

So I ran the 20 day correlation in a loop, testing every 20 day (one trading month) period from 12/28/09 to today, and then plotted the result of each correlation, ie. how well oil and the market correlated for every 20 day period.The results are interesting. We can see that over the course of the last year, oil and the markets have pretty much moved together, though by varying degrees.

The greatest correlation came in the 20 day period beginning 4/30/10. After that, oil started to become generally less correlated with the market but at no time did it exhibit an inverse correlation (except for two dips just below zero). Until just under two months ago: January 21st of this year. After that, oil and the markets started moving in opposite directions, and the trend has been getting constantly larger ever since. Ie., the more oil goes up, the more the market goes down.

Unfortunately, this all seems to raise more questions than it answers. Why should oil suddenly reverse its correlation with the markets around the end of January? I tried poking around the news archives around that time but didn't find anything particuliarly significant. The unrest in Tunisia was already going on at that time, but it was a month later than when it all started. And why the big spike in positive correlation at the end of April 2010? Quite frankly, I have no clue.

It might be worth revisiting this to see what happens when oil and the markets go back into positive correlation. I wish I had a better conclusion than this, but it's still pretty interesting. Perhaps the main lesson here is that rising oil is never necessarily always either good or bad for the market. And whatever relationship it has is subject to change in a non-random fashion.

All Hail King Oil!

Bow to the barrel
All hail the King! King Oil, that is. I thought last week's crazy run-up in oil was due to Middle East politics. But this week's even bigger jump clearly indicates that Mr. Market has left the building and oil is now in the driver's seat. It matters not what candles the market put in last week so there's no point in putting up the weekly Dow chart the way I usually do.

Instead, today, we're going to look at oil, specifically crude oil futures. Here's the weekly chart going all the way back to 2008.You may want to click on the image to view it larger. I don't know about you, but I don't like the looks of this chart. Let's start off on the right-hand edge. Two weeks ago, oil opened at 93.75. It closed last week at 106.63. That's a 14% jump in two weeks.

Are you driving 14% more than you did two weeks ago? Are the airlines flying 14% more planes than they did two weeks ago? No and no. Is Libya a major oil exporter? No. It produces 2% of the world's output. Has it all gone offline? No. And the Saudis, who aren't stupid, have indicated a willingness to make up any shortfall.

So this trend is not being driven by supply and demand, it is pure speculation, exactly the way it was back in May of 2008. In fact, that's where we have to look to find the last comparable situation, which I have conveniently circled for you on the chart.

Historical comparison

Now here's the scary part. After that jump in 2008, it took eight more weeks before we finally hit the crazy blow-off top in the first week of July. And it only gets worse. Draw down from the prices in May 2008 to the indicators below the chart. Then compare that to today. We are right now if anything even less overbought than we were in 2008, implying that oil still has as much steam to go higher now as it did then. And oddly enough, if you follow the horizontal blue line that marks our current price level back to the left, it intersects the chart at the end of April 2008, just before the big two week jump.

On top of that, we're now hearing calls for oil to hit $200, just like back in 2008.

And we all know what happened to the economy in the fall of 2008 after oil had peaked.

Good news/bad news

Now for the good news, such as it is. First of all, I think oil has the same chance of hitting $200 this year that it had in 2008, ie. none. And if anyone tries to tell you that "this time is different", you can be sure that this time is exactly the same as last time. One thing that really is different though is that the economy is in a much different place than it was in early 2008. If your plane crashes from an altitude of 10 feet, your survival odds are a lot better than if you crash from 10,000 feet. Right now, the economy is nowhere near as overheated as it was back then.

Now I suppose that there's some apocalyptic combination of circumstances that could join together this year to throw us into an even worse spot than the Great Recession, and there are some people who still keep their fallout shelters stocked, just in case, but you can't really live your whole life that way. I just find it hard to believe that that's going to happen. Not when all the hard economic news coming out lately is actually good.

Nevertheless, clearly this oil nonsense is bad for the economy. But I don't think it's the end of the world (that comes next December 21st, according to the Mayans). And if history is any guide, it might just end with another collapse of oil prices back down to more reasonable levels. Like last time.

Where to next?

So how much longer? Well here is a weekly chart of the XOI, the Amex oil index, going back the same time period:I've drawn a rising regression trend channel on this starting with the low at the end of last June. Note that the Pearson's coefficient on this one is 0.991, an extraordinarily high number for a market regression. If you extrapolate this trend forward, where does it intersect the all-time high from 2008? June 13, 2011. Call it somewhere in the middle of June. That's when oil will hit $147 a barrel again. And oddly enough, that date is just about the same amount of time it took the last oil spike to top out. Look at the futures chart again. The peak? The last week of June 2008.

Possible outcomes

After that, it can either continue higher or collapse, just like last time. I'd be really surprised to see it go higher because I don't think the world economy can support it at this time. One other possibility is that oil will just spike exponentially and thereby hit the blow-off point before June. But based on what we've seen so far, it sure looks like we're getting ready to play 2008 over again..

So the bad news is that we still have about three more months of teeth gritting every time we fill up our tanks at the pump. But the good news is that it's not too late for you to be an oil speculator too and join in the fun. I don't normally play this sector, specifically because I believe it to be so highly manipulated, but obviously plenty of others do. And that's all she wrote.