Obama to America: Let them eat cake; rally still possible Tuesday

Credit where credit is due dept.

It seems hard to believe that it was just a week ago when we stood at Dow 12,657 that I wrote:

"I think we're much more likely to see 11K this month before we see 13K."

That sure didn't take long, did it?  Today's close: 10,810.

 O-bomber, Ax Murderer of the Dow

This afternoon, when the VIX had reached the incredible level of 39, I posted that it could possibly be telegraphing a peak and therefore an end to the slaughter on the Street  Then Emperor Nerobama went on TV.

The Empty Suit delivered an Empty Speech.  The Dow responded by nearly doubling its losses on the day and the VIX rose another 9 points to close at a beyond incredible 48.  If you missed this rhetorical masterpiece, let me quickly summarize what he said: "Blah blah blah blah blah."  I think that's pretty much the gist of it.  I may have one of the blah's in the wrong order, but yes, that's it in a nutshell.

Marie Antoinette, playing fantasy games

Let's see.  Um, he blamed pretty much everybody except himself for the mess we're in.  He somehow managed to call for both lower taxes and higher taxes.  Then, in a truly astounding display of arrogance and contempt, he assessed the current disaster in the stock market by saying "Markets go up and markets go down".  I was waiting for him to follow this up with, "Let them eat cake" ("Qu'ils mangent du gâteau").

Marie Antoinette would be proud.  About all that's left is for him to go prancing about the White House lawn in a hoop skirt with a crook tending a flock of sheep.  That would be about as effective as anything else he's done since taking office.

Let me be perfectly clear: Mr. Obama, you have demonstrated time and time again that you are simply not up to this job.  If you really want to help the country and be remembered as a hero instead of just another self-serving hypocritical politician, then kindly resign.  Now.  Go away.  Thank you.

The VIX revisited

OK, so back to the VIX.  It's 1 AM Tuesday now and incredibly, ES is continuing its relentless march to the lower reaches of Hades, down another 1.3% in the overnight as I write.  NQ and YM are both down again too.  But, ES stands at 1096.75 right now.  At 10 PM, just three hours ago, it was at 1077.   There's still plenty of time between now and Tuesday's open to make a move higher.

Now looking at that huge green candle the VIX put in today and the palpable level of fear on the Street, I'm almost scared to say that the VIX will go lower Tuesday.  And it's entirely possible that it will in fact go higher.  After all, we were at this level on October 6th, 2008 and in just two more weeks back then, the VIX skyrocketed to 89.53.  And after the last two weeks, clearly the market is never going to go up again, right?  It's headed for zero, right?

Maybe not.  Since that time in '08, the current level of 48 has become a resistance line.  The VIX spent most of early 2009 trying to rise above it without success, and last May's peak during the European PIGS crisis v. 1.0, it topped off at exactly 48.  So I'm going way out on a limb tonight and claim that the VIX is going lower tomorrow.  That should provide the juice to run the market higher.  This despite the fact that the S&P ominously broke under its 200 week MA today, also as I predicted yesterday.  Note however that the Dow did not.

And don't forget that tomorrow is a Fed day.  I'm sure Uncle Ben was watching Obama's idiotic speech and has no desire to follow (empty) suit.  While much has been made about the Fed running low on ammo, don't discount the potential psychological impact of encouraging words, kind of like telling a dying man he's going to be alright.  (OK, maybe that's not the best analogy, but you get the idea).

Bottom line

Tomorrow's absolutely critical number: Dow 10,740, the 200 week MA (just 70 points from here).  Going below this virtually ensures more pain.  Shying away or bouncing off it and we're going higher.

VIX gap up foretells a fall, rally possible Tuesday

Today I took a look back for times where the VIX had a big gap up day after hitting its upper Bollinger band the day or two before.  I found three of these in recent memory, all from the Great Recession:11/12/07, 1/22/08, and 3/17/08.  I found six more cases going back a total of 10 years.  That's a total of nine times.  In every one of these cases, the VIX was down hard the next day.  And checking the last three times, we see that the next day, the Dow rallied hard.  The Dow was up over 300 points on 11/13/07, 300 points on 1/23/08, and a whopping 416 points on 3/18/08.  And remember, these numbers came in a similar period as now, as the US was just entering a recession, a few months after a big market peak.

And today's VIX gap up is huge.  Right now, at 1:35 PM the VIX stands just over 39.  Thirty nine!  That's up a whopping 22%.  In one day.  Because one rating agency downgraded US debt from AAA to AA+?  Not even AA, but AA+?  Does any of this strike you as just a little overdone?

Now you might say, "but this time it's different".  Well, one of my rules is that whenever someone says that, you can be sure that this time it's the same as every other time.  We'll see how the rest of the day plays out.  Right now, I'm not even looking at my trading account.  It's just too awful to contemplate.

Looking bad for Monday, very bad

Well it's 1:17 AM on Wall St. Do you know where your money is? I know where mine is. Down the toilet is where it is. ES futures opened for trading on Sunday evening with a gap down that's usually reserved for events like the outbreak of a world war, a giant asteroid heading for Earth, or Martians landing on Wall St.

I generally like to look back in the past for historical precedents for clues as to how the market may move the next day. But there has never been a situation like this. I have no idea what's going to happen. About all I'm willing to guess is that we're going to see some wild swings over the course of the day. Normally ES trading is pretty sleepy on a Sunday evening. Tonight, it was bouncing around like a Piper Cub in a thunderstorm, up and down as much as a point in mere seconds.

Weekly E

Just look at this chart.

This is the weekly ES chart because when I put up the daily chart, I couldn't find any support going all the way back across it. Here we can see that we've fallen clear back down to a support shelf beck from December of last year, well before the current contract began active trading.

Words fail me. I've never seen anything like this. This is worse than the fall of 2008. And it's puzzling too because a credit downgrade from S&P from AAA to AA+ doesn't really seem to be in the same league of disaster as the collapse of Lehman Bros.

It sure looks like the little devil on my shoulder from yesterday, the one predicting impending doom, is having the last laugh. Right now all three market futures are trading down an incredible 2.5%. And this coming after last week's exponential collapse. The only good thing here is that Monday's action may provide the washout low we need to start crawling back from the abyss.

But I'm afraid there's not even much to cheer there.  From the looks of it, tomorrow the SPX is going to cross under its 200 week moving average.  And that will be as bad as when we crossed under the 200 day MA.  Amazingly, that was just three sessions ago.  If the 1170 ES level gives way, we're in for even more losses, as amazing as that may sound.

One thing's for sure - tomorrow's going to be a day to remember.  Fasten your seat belts...

What the heck

Well the best thing I can say about this week is that it's finally over.  A horrible, miserable dive off the cliff fittingly ended with a debt downgrade from the erstwhile S&P, whose managers I'm sure will now all have to get unlisted phone numbers and join the witness protection program.  Thank God the markets are closed on Saturday.  And Sunday too.  At least the Ess-n-Pee  had the decency to drop their debt downgrade bombshell after trading ended on Friday, giving us the whole weekend to reflect on the implications.

And their statement was rather odd too, I thought.  It seemed to be more an indictment of America's admittedly Kafkaesque political system than its economic might.  All that aside from the bizarre question of a minor $2 trillion arithmetic error that may or may not have occurred.  In any case, thank you very much, Emperor Nerobama, Harry Reidboehner, and the rest of you Gang of 435 for tanking America.  We'll remember you all come next Election Day.

So what does this all mean for next week?  Who the heck knows.  I feel like one of those cartoon characters who has a little angel sitting on one shoulder and a little devil on the other.  The angel is saying "it's not so bad, this has already been priced in, all this does is remove some uncertainty from the market".  And the devil is saying "This is it, it's time to panic, you think last week was bad,  the market is going to be decimated come Monday".

I guess the only clue we're going to get is when the futures start trading again tomorrow evening.  Personally, it seems like taking the pessimistic view has been the winner lately.  For now, with the VIX at its current crazy levels, I will continue to stand aside until some semblance of sanity returns to this psychotic market.

Capitulation?

Well my cable modem died this evening so I'm using the 3G network on my tablet to connect to the web. It's good for emergency use, but my data plan in limited so tonight's post is going to be short.

There's not much to say tonight anyway after today's horrendous slaughter on Wall St. Last night I was sure that the hammer we saw yesterday would mean we were going higher today. Boy was I ever wrong. Today I had my worst day by far since I started trading. In my defense, I will say that a) I wasn't the only one who got fooled and b) I did say I was going to wait for a confirmation today before declaring a reversal at hand.

That said, today had the feel of capitulation to it, especially by the end of the session and given the extraordinary relative volume and the VIX hitting nearly 32, closing above the level it hit during the Japanese quake/tsunami panic back in March. The best that can be said is that the charts are going exponential now and that generally means a turnaround is near.

But with the VIX at these levels (and I was sure wrong about the VIX going lower today too), all bets are off. I'm going to continue to stand aside until I see a turnaround. This isn't a falling knife, it's a falling guillotine and there's no way I'm going to try catching it.

Good luck to all tomorrow and heaven help us. Oh and a big thanks to Emperor Nerobama for tanking our economy and destroying America.

Hammering out some gains on Thursday?

Well last night I called for a dead cat bounce today.  I was right about theDow breaking its 8 day losing streak, but it wasn't a DCB.  It was something a lot better - a great big bullish hammer.  So tonight we once again check out the bear and bull arguments for a clue as to where we're headed tomorrow.

The bearish view

The hammer is usually a pretty good reversal indicator.  However, we need to see confirmation the following day, so I'm not going to call this a bottom just yet.  The recent market action is one knife I have no desire to try catching and it's not out of the question that we could resume lower tomorrow..  We also remain under the Dow's 200 day MA and well inside the July 22nd descending regression trend channel.  The economic news continues to be pretty gloomy and there's more unemployment numbers coming out tomorrow, and they're likely to be pretty awful.  So that's the bear case.

On the other hand, we still have a set of technical indicators that are now about as oversold as they ever get.  Let's look at the RSI in particular.

 How long can the RSI stay this oversold?

Once again, this morning the Dow's daily RSI was zero (though it did mange to end the day barely above 0).  That makes three days in a row.  It struck me as being highly unusual so I decided to check on how often that happens.  I looked at Dow daily data from November 3rd, 1980 to today.  That's 7,759 sessions.  In that time the Dow RSI has hit zero just 22 times.

And the longest run of RSI's at 0 was 5 consecutive days.  That only happened once, way back at the end of January 1984 when the Dow was in one of its six week losing streaks.  There were no other zero-RSI streaks of length greater than two.  We are truly in exceptional conditions.  The RSI starting to come back to life is bullish.

A brand new indicator: meet the MIX

We've got the VIX, right?  Well tonight I unveil a brand new proprietary indicator: the MIX.  That's Michele's VIX.  It consists very simply of the daily traffic to this blog.  I've noticed over the past year that traffic tends to increase when the market is down, and vice versa.  The great Brett Steenbarger was the first I know of to observe this phenomenon, and by golly, it works.  Well anyway, today the Nightowl Trader got an all-time record high number of individual page hits.  That is a reversal indicator, according to the MIX.

From MIX to VIX

And speaking of the VIX, last night I said that it looked to have peaked and would head lower today and that's just what it did, dropping 5.7%.  Lower VIX, higher stocks.  As I showed in my post on the predictive power of the VIX, when the VIX peaks, the market will usually reverse course either the next day or one day later.  Today's Dow hammer bears this out.

And I think the VIX will move lower again tomorrow.  We now have a hanging man followed by a lower doji.  The VIX also fell below its daily pivot this morning and that level (24.07) acted as resistance that it tested twice later in the day and failed to break above.  All these factors point to a lower VIX.

Back to the futures

Finally, all three market futures are up at 1:10 AM.  In particular the ES, my go-to chart, is up a good 0.3%.  And ES broke over today's pivot at 9 PM this evening.  Tomorrow's pivot (ie. Thursday) becomes 1247.58 and we're now well above that at 1257.75.  Holding above this number will be bullish, falling through it, bearish.

Oh, and the Morningstar Market Fair Value indicator dropped again today, to 0.91.  That's almost exactly to where it went last year around this time just before the sell-off ended.  A number like that tends to point to a reversal.

Oh, and another good sign - those doofusses in Congress have finally hit the road to give us all a welcome month long respite from their endless infantile bickering.  Not having to see Harry Reid's face in the news every 5 minutes can only improve traders' dispositions.

The bottom line

While the monthy charts remain pretty ugly, they don't look quite so bad now as they did before this 8 day losing streak.  And today's hammer (which was mirrored in both the SPX and the Nasdaq), coupled with the  higher close that finally broke the 8 day curse should lend some positive momentum to the market.  And with the VIX looking more likely to go down than up, and the MIX  at a record high, I'd say that tonight the bulls hold the better hand for tomorrow's game.  I'd not be shorting this market tomorrow and I do think we'll close higher Thursday.  We'll see.

Dead cat bounce possible Wednesday

Dow daily

Ya gotta love Robbie the Robot. Last night he warned us of the perils of crossing the S&P 200 MA and sure enough today we were treated to some ugly losses across the board, with the Dow taking a 266 point nosedive with a solid red candle.

Take a look at this daily chart - yesterday the S&P crossed the 200 MA, and today the Dow followed suit. No support, no test, just badda-bing, leaving us at 11,867. This not only broke the 200 MA support, but the June support of 11,894 too. From here there's no more support until the March lows around 11,614. That's just 253 points from here. We dropped more than that today alone.

Further support lies at 11,450, 11,200, 11,000, and 10,680. But we don't care what happened, we want to know what's going to happen tomorrow, Wednesday. Let's look at the bull and the bear arguments.

Dow losing streaks

Today put the Dow on an agonizing eight day losing streak. Which brings up the question of how long can this go on? You may recall I addressed the issue of market streaks in this post last year. Today I did the analysis over again, this time using Dow daily closes all the way back to October 1st, 1928 rather than just the last 10 years. And what were the results? Well, in 20,802 sessions, the longest continuous losing streak in the Dow was... drum roll please... ten. And that only happened once

There were three streaks of length 9, and just 4 (make that 5 after today) of length 8. So the odds of this losing streak going longer than 8 tomorrow are just four out of 20,802. As I mentioned in my post just this past June on weekly losing streaks when we were down six straight weeks, this is the kind of number you really want to think about betting against.

And back in June, sure enough, the Dow did not go down an additional week. And those odds were only 5 in 4,264. But historical arguments are like counting cards in blackjack. No matter how high the count swings in your favor, you could still lose the next hand. Still, you have to wonder...

The technical indicators 

Adding to the bullish case is the state of the technical indicators. The Dow's RSI hit zero, yes zero. And it hit that yesterday. It remained there today. It literally doesn't get any more oversold than that. The last time the RSI hit zero was on July 2, 2010, following 10 straight losing days (OK, there was one day in there that closed 5 points higher which prevented the run from truly being 10 long, but the idea is there).

Anyway, what happened next? The Dow took off on a 7 day rally. In fact, July 2, 2010 was the exact day that the longer term uptrend began, lasting all the way until this past May. There is one big difference though. Back then at that point, we had been below the 200 day MA for 7 sessions. Today marked just the first close below it. Still, you have to wonder...

The other indicators are equally oversold. The Dow momentum was -721 today - that's the one there that looks like it's falling off the bottom of the chart. Money flow and the stochastic are also highly oversold.

 The VIX

Meanwhile, there's some possibly significant guidance in VIX land tonight. This VIX rose today to close at 24.79. However, today marked the third day it put in a lower high. The last three VIX intraday highs were: 25.94, 25.63, and 24.79 (today). Just as importantly, today's candle was a textbook bearish hanging man. And today the VIX exited its ascending regression trend channel of July 22nd. That is a bearish setup (remember, bearish for the VIX is bullish for stocks).

And today the VIX broke away from its upper Bollinger band. Finally, all of the VIX indicators are as oversold as they've gotten on past VIX peaks. The short stochastic in particular executed a bearish crossover today. This is looking to me like not a bad entry spot for a position in XIV, the inverse VIX tracking ETF.  And it implies that if the VIX is truly poised to go lower, the market will perforce go higher.

Morningstar Market Fair Value, 3 year

Finally, let's check out the Morningstar Market Fair Value graph (which you can see on their web site here).  Yesterday's ratio was 0.93.  I expect today's number (not out yet) was lower.  And remember July 2nd, 2010?  Well that was the day the Morningstar ratio hit its low during last summer's ugly spot.  The value? 0.90.  We're getting pretty close to that now.

The Bear Case

So that's the bull case.  The bear case?  Well, it seems to consist entirely of the fact that in the last two days all three major indices (Dow, SPX, and Nasdaq) crossed below their 200 day moving averages.  But the thing to remember, is that while this is bad, very bad, it's not instantly fatal.  Look back at May 20th last year.  That was the last time the Dow took a real dive straight through its 200 MA.  The next day was up.  Of course it then went on to put in further lows, but the day after the plunge was up.

The bottom line

I'm kind of expecting this same scenario for tomorrow.  At the moment, the market futures are essentially flat.  The ES is actually up by a scant 0.08% at 1:50 AM EDT.  Which doesn't mean there isn't more downside to follow.  I think there is.  But I also think that we're in for a short bounce, dead cat style, most likely tomorrow (Wednesday) and possibly extending into Thursday.  That's all she wrote (whew, that's enough!)

Danger Will Robinson: S&P hits 200 MA

Danger, Will Robinson!

Remember Robbie the Robot on TV's Lost in Space, perpetually warning Will Robinson of impending doom every week? Well, he's paying the market a visit tonight in the form of a double-barreled alert, so pay attention.

The Dow Monthly

Last night I looked at the huge pop in the market futures and decided we were in for a big relief rally today. And that's just what we got - until 10 AM when the ISM numbers came out and rained on the parade. After that, it was all over.  Up 100 points, then down 200, then back up again to finish barely down 11 points on the day. More than one person commented on what a strange day it was. And totally untradeable, for me at least. These sorts of violent intraday swings may be great for the day traders, but they do nothing for me as a swing trader besides making it impossible to choose decent entries or exits.

Dow monthy chart

But tonight, being the start of a new month, we look at the monthly Dow chart here, and it's not looking good. You can see the rising regression trend channel of July 2010. We exited that in June - that was a bearish setup. And stayed outside last month - that was the bearish trigger. And look at the indicators. They all peaked at overbought levels in May and are now headed back down, also bearish. May was also when we peeled away decisively from the upper Bollinger band.

The Dow has no monthly support until 11,555. Then there's slightly better support at 11,000. On the upside, there's resistance at 12,850 and 13,950. But I think we're much more likely to see 11K this month before we see 13K.

On the other hand, the short term picture is looking pretty good. Today's wide-range doji at the bottom of a seven session downtrend indicates at least the possibility of a reversal. And the daily indicators are all now quite oversold. And since this latest downtrend was apparently entirely motivated by the shameful antics in Washington over the debt ceiling, now that that issue is resolved, absent any new crisis the selling pressure should abate somewhat. Indeed, today's selling volume was lower than Friday's.

Crossing the 200 day MA

The picture over in S&P land is a bit different though. Today the S&P actually dipped below its 200 day moving average but managed to close back above it, just barely. With today's close of 1287 and the MA at 1285, a close below this number tomorrow will be very bearish. And that's not out of the question.

All three market futures are down by a quarter to a third of a percent at 1:50 AM EDT. And ES is also sitting right on its 200 day MA at 1274.93. Staying above this is bullish, a break below, bearish.

So once again we have a night that's too tough to call. The indicators are suggesting bullish, but we're right at the 200 MA crossroads so we need to see what the market does with that before putting on any bets. So I'm still standing aside, though if I had to guess, I'd say we could see further downside tomorrow (Tuesday).. Oddly enough though, I had my best trading day of the year today, up 1.71% on a day the Dow lost 0.1%. And that was welcome indeed because I've taken a lot of heat over the past week.

Is the next recession here?

And in case you haven't had enough doom and gloom yet, here's an article you must read from 247wallst.com:Ten Signs The Double-Dip Recession Has Begun. I have to admit, they make an excellent point that the next recession is not just imminent, but already here. All the more reason to exercise caution over the next few months.

Relief rally coming Monday

Well what do you know - according to tonight's news it seems that the clowns down at the Reedling Brothers, Boehnum and Obamley circus have finally concluded their act.  And as I mentioned last week, the market would not turn around until that happened.  Now that it has, we're going higher.  At 1 AM all three market futures have gapped up by about 1.5%, an amazing number that I have never seen in my eight years of trading.

Even without this, the Dow, S&P, and ES daily charts were all looking quite bullish on a purely technical basis for Monday anyway.  So tonight is one of those no-brainer calls.  I am pulling my long hat firmly in place.  We're going higher tomorrow.

That said, the monthly Dow chart is looking very poor.  I'm planning to use any gains tomorrow to start scaling out of some long positions.  I'm currently about 1/3 in cash but I want to go more like 60 - 70% cash over the next few weeks.

Oversold but going lower Friday

With the continuing stupid pigheaded obstinacy emanating from our so-called leaders in Washington, there is no point whatsoever in bothering with any technicals tonight since everything now hinges on the debt ceiling debacle..  This sort of leaves me at a loss, since what I do is technical analysis.

Technically, we're now at oversold levels and due for a rally in a day or two, but practically speaking until these suicidal egomaniacs hell-bent on destroying the United States can get off their collective butts to do something constructive, the market will simply continue lower.


As I stated earlier this week, I am now out of the game until after Doomsday next week.  I've never seen anything like this and I am completely disgusted.

Foofie

Foofie

May 30, 2003 - July 27, 2011

Today, after a long illness going back more than seven months during which we tried everything possible, we finally had to admit defeat. Foofie, our beloved German Shepherd is no longer with us. She was only 8 and we had her less than seven years.

Somehow, tonight I simply do not care whether the market goes up or down. Foofie, we miss you something fierce.  We are simply devastated.

Losses may extend into Wednesday on weak technicals

Where's Cromwell when you need him?

In April 1653, Oliver Cromwell delivered a memorable address to Parliament, to wit:

“You have been sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go!”

That about sums up the way I feel about our own "Parliament". It's really a pity we can't be done with this collection of clowns and other assorted Twelfth Night characters as easily as Cromwell was 358 years ago.  Mr. President, Harry Reid, Nancy Pelosi, John Boehner, in the name of God, go!

The technicals

Meanwhile, back here in what's left of America, the market did not hold up today (Tuesday). The pivot proved to be the deciding factor. We were above it in the wee hours, survived a test around 5:30 AM, but then sliced decisively below right at the open and it was all over. I let myself be guardedly optimistic based on the futures last night and in retrospect that was a mistake. The candlesticks and the indicators were decidedly more negative than positive.

And I hate to say it, but we've got more of the same tonight. Only now at 1 AM EDT, ES isn't even above its new daily pivot of 1330.50. Today's ES action also took us completely out of the short rising regression trend channel from July 19th and that is a bearish trigger.

I also took a look at the chart of TNA, the preferred vehicle of J-Trader's Buy/Sell model. JT's system remains stubbornly long and I have to say I'm just not seeing it. After a doji peak two days ago, a second lower doji yesterday and a longer red candle on increased selling volume today, this does not look like a stock that's going higher tomorrow. The stochastic in particular executed a bearish crossover yesterday. Not good. And to the extent that TNA is a proxy for the broader market, I think we have lower to go before we go higher.

In addition, the Dow's daily chart is even more grim with a bearish three black crows pattern. You don't see the TBC too often but it's never good. The Dow also has no support from its close today of 12,501 down to 12,385, the support level from earlier this month.  And if that wasn't enough, the Dow has now clearly formed a double top, another bearish sign.

Then the VIX is back above 20 but still far from its upper Bollinger band at 21.68. And its indicators, though now rising, are still nowhere near overbought levels. I see no reason for the VIX to fall tomorrow. VIX no fall, market no rise. So all in all, I'm going to reach for my short hat but as I mentioned, with the current outbreak of total lunacy in Washington over the debt ceiling, I'm sitting this one out until some measure of sanity returns down there.

Of course, if by some miracle, Emperor Nerobama should somehow trade in his fiddle for a fire extinguisher tomorrow, look for the markets to go up. Absent that, I'm just not feeling the love from the technicals tonight.

Slight positive bias but news trump technicals

Moe-bama, Nancy Curl-osi, "Larry" Reid

Nyuk nyuk nyuk

Definitely no wise guys here. I'm appalled beyond belief over the antics coming out of Washington the past week from Bo, Larry, and Nancy. It's just too bad there weren't four Stooges though, because Boehner deserves a spot in there too. Not to mention the rest of the 535 clowns down there who have the affrontery to call themselves "representatives".  Have these people no shame?

Memo to Emperor Nerobama: stop fiddling around and start being a leader. It's just disgusting beyond words.

Meanwhile on Wall St.

The market ended lower today pretty much as I expected with the Dow down 88 points after a big gap down at the open. The carnage was all over in the first 60 seconds of trading. There was no way to profit from this unless you had gone short last Friday. I suppose the subsequent retracement off the lows provided some opportunity for the day traders, but I saw none of that.

ES daily, 7/25/11

For tomorrow, I think the clues come from the S&P futures. ES is up almost a quarter percent right now at 1 AM EDT.Two things are evident in this daily chart: first, today's sad action did not take us outside the ascending regression trend channel from July 18th. Second, today's candle formed a hammer. These are both bullish signs. And tonight's action (ie. Monday evening's overnight into Tuesday) is also forming a hammer.  For tomorrow, watch the daily pivot, now at 1331.92.  We're now above that level, thanks to a combination of a minor late evening rally and the fact that the pivot is now lower.  Staying above this number will be bullish.

Meanwhile the VIX put in a big gap-up doji that's looking a lot like a bearish evening star. And J-Trader's Buy/Sell model is stubbornly hanging on to its bullish bias. That didn't work out so well today, but the market is firmly in news driven mode now and will remain so until we get past this latest comedy routine coming from the Three Washington Stooges.

Although my personal bias is to the up side for tomorrow (Tuesday), I am simply standing aside until all this debt ceiling nonsense is resolved. I hereby declare summer vacation until August 3rd. Anyone for Pina Colada?  That's all, she wrote.

Going down

With the collapse of the debt ceiling talks and the passing of Boehner's 4 PM Sunday deadline with nothing to show for it, the futures expressed their displeasure in no uncertain terms, opening this evening with the biggest gap down I've seen since I started trading in 2003.  Right now at 1:20 AM EDT, all three market futures (ES, NQ, and YM) are down just over a full percent.  That's huge.

And totally unplayable.  All the action was over in seconds.  And it will be the same story tomorrow when Wall St. opens for business.  Unless you happened to go short on Friday afternoon, forget it.  The only bright side is that it might be time to go bargain hunting when the dust settles.

Anyway, there's no point in even talking technicals tonight.  The market's going down on Monday and that's that.  Thanks a lot, Obama, Boehner, Reid, Pelosi, and all the rest of you other venal amoral ignorant egomaniacs who make me embarrassed to be an American.

More gains possible Friday

Well the indecision reflected in yesterday's doji was resolved today in no uncertain terms with an awesome 152 point gain in the Dow on increased volume.  I clearly erred by taking my XIV play off the table yesterday.  Today it gained more than I realized the day before.  Oh well.

I guess I let my thinking be influenced by the previous run of short rallies we had back in May and early June where they'd get cut short just when things started looking good.  I'm still net long, so I did make some decent money today.  I bought a bit of Ford (F) at 13.23 this afternoon; it ended at 13.33.  We'll see how far I can drive this one.

Anyway, today's rally brought us to 12,724 which happens to be a resistance level from earlier this month.  If we can clear that, then the next stop is the upper Bollinger band at 12,879 and then the 12,990 region representing the YTD high at the start of May.  So there's some decent room to run between today's close and the next resistance.  Can we get there?

The ES futures tonight would seem to suggest so.  All three market futures are up nearly a quarter percent at 1:40 AM EDT.  ES at 1346 is now well above its daily pivot of 1333.67 and it has no resistance until 1353.  It's beginning to show overbought on RSI, but that always seems to cut in early.  There's no topping sign from either momentum, money flow, or the short stochastic just yet.

Finally, the VIX sliced down through its 200 day MA today like buttah and its indicators are still not at oversold levels.  The most recent two times this happened, it went lower still the next day.  And it's still only in the middle of its Bollinger bands.  Since I'm out of my XIV trade, I'm now going to wait for the VIX to bottom, then I'll take a TVIX position.  That should be sometime early next week.

But until then, I'm keeping my long hat on.  J-Trader's system is also holding long tonight and it's been turning in quite a stellar performance lately.

Failure to follow through worrisome

Last night I was thinking that we'd get more upside action today largely based on the technicals.  Today's 15 point drop in the Dow formed a spinning top indicating indecision in the market.  The failure to follow through today on yesterday's big gains has me worried.

I've gone back to 2008 in the Dow looking for instances where a big up day was followed by a tiny range day.  Most often, the next day is also a small range day.  The fact that we are nowhere near the upper Bollinger band of the Dow is somewhat encouraging.  And the indicators are also all somewhere in the middle of their cycle from oversold to overbought.  So there's nothing particularly bearish there.

Turning to the VIX, we see that it took a gap down day but ended by putting in a green candle, close to its 200 day MA.  Since the VIX is now in the middle of its Bollinger bands, I decided to take my profits on my XIV play this afternoon.  I know I'm risking leaving money on the table, but I'd rather do that than see my profits evaporate should the VIX turn higher tomorrow.  And we've seen it do that from a similar position a number of times this year so far.

Meanwhile, both ES and YM are higher by about 0.2% tonight at 1 AM EDT, but NQ is off by about the same amount.  So all in all, the crystal ball is a bit cloudy tonight.  There are some more jobs numbers coming out tomorrow morning and they may move the market.  J-Trader seems to believe that this may be just a consolidation and is remaining 100% long even though the issue he tracks, TNA, declined 0.63% today.

I'm not so sure.  I think once again the pivots will be key.  ES just now broke over its new daily pivot at 1323.42.  We will need to stay above this number to send the market higher tomorrow.  Similarly, the Dow closed at 12,572, just over its own pivot of 12,527.  Tomorrow's pivot should be higher.  Watch for any cross below that as a bearish signal.My best guess is that we'll see another small range day in the Dow, possibly weakly bullish.  But that assumes no real negative jobs numbers come out.  We'll just have to wait and see.

Let it ride

Yesterday I called for a higher close today and boy we sure got it, to the tune of a monster 202 point jump in the Dow.  The technicals all worked to perfection, Colin Twiggs' money flow hit a bull's eye, J-Trader's Buy/Sell model buy call was spot on, and my XIV trade panned out nicely with a 5.4% gain today.

And I don't think it's over yet.  Even after today's big gain, the indicators are still only just coming off oversold levels.  We're now well above both the Dow daily pivot at 12,386 and the ES daily pivot which for Wednesday is 1315.25.  Today ES ended outside its July 8th descending regression trend channel and that's a bullish setup.  With another 0.15% gain right now at 1:45 AM EDT, that will be a bullish trigger unless we fall below 1308, something that's not looking too likely right now.

And the VIX dove 8.3% today with a gap-down red candle, completing a bearish shooting star.  That is a powerful reversal pattern.  I think the VIX still has lower to go on Wednesday.  It's just now coming off highly overbought levels and it has no meaningful support until its 200 day MA at 18.44.  Today's drop also brings the VIX out of its ascending RTC which is a bearish trigger.  Lower VIX, higher stocks.  I intend to let my XIV trade (which profits from a drop in the VIX) ride tomorrow.

Finally, I note that J-Trader "expects more upside" on Wednesday and I completely agree.  His system has been working amazingly well in a choppy environment.   So tonight I'm seeing lots of reasons to hold 'em and no reasons to fold 'em.  That's all she wrote.

Gains likely Tuesday

Last night I said we might see some higher action today, but I was concerned about the futures being lower.  I also noted that any gains today hinged on the ES pivot and the Dow pivot.  As it turns out, we never got near either one and the results were predictable with the Dow losing 95 points.

So with the Dow in yo-yo mode, alternating between up and down for the last five sessions, which way tomorrow (Tuesday)?

Let's take a look at the Dow daily chart, but tonight it's not mine. Here is the chart from Colin Twiggs' Trading Diary weekly email newsletter (click the chart for a larger version). The interesting thing about this chart is his "Twiggs Money Flow" oscillator, which is his own version of money flow.

While I use money flow as one of the indicators on my charts, I find that Mr. Twiggs' oscillator is much more informative. And tonight it bounced off the 0% level. While it is still early to call tomorrow higher on that basis alone, this version of MF seems to be announcing at least the possibility.

You can learn more about this at http://www.incrediblecharts.com.  This site is well worth a look and Twiggs' newsletter is great - I highly recommend it.  Many thanks to Mr. Twiggs for kindly allowing me to reprint this chart here.

Another bullish sign is that despite today's losses, the Dow has now exited the July 7th descending regression trend channel. In addition, J-Trader's Buy/Sell model gave another buy signal today and is now 100% long.

Meanwhile, all three market futures (ES, NQ, and YM) are up at 1:20 AM by about a third of a percent and have actually been trending higher since 1 o'clock this afternoon. In addition, ES at 1304.25 is now above its new daily pivot of 1302.17. And both the ES daily RSI and momentum have now bottomed from oversold levels and hooked upwards. Those are all bullish signs.

Finally we come to the VIX, which today put in something between en evening star and a gravestone doji, both of which are bearish reversal patterns. And this candle just missed touching the VIX's upper Bollinger band.  Lower VIX, higher stocks.

So all in all, I'm not seeing much in the way of warning signs for tomorrow and I am seeing enough positive indications to have me putting on my long hat. I don't know if this will start a new trend, but at least things are looking up for Tuesday.

Playing the VIX

I talk a lot about the VIX here. Well I recently discovered that you can play the VIX just like a stock using TVIX, VelocityShares Daily 2x VIX Short Term ETN and its inverse, XIV VelocityShares Daily Inverse VIX Short Term ETN.

TVIX ("Trade the VIX") tracks the movement of the VIX and XIV ("VIX" spelled backwards, get it?) tracks the inverse of the VIX. If you believe the VIX is going up, you can buy TVIX. If you think it's going lower, buy XIV. Today I picked up some XIV at the end of the day at 16.10.  We'll see if this trade pans out tomorrow.

Monday higher possible, rest of week uncertain

Last Thursday night, I was weakly bearish on the market for Friday.  Turns out the Dow posted a 43 point gain after wandering around the flat line most of the day.  So I was wrong and J-Trader was right by sticking with his buy signal from the day before.

Now we're at an interesting juncture.  Friday's gain came on significantly increased volume and the Dow is now rather oversold.  The VIX also fell on Friday for the first time in five sessions and its indicators have now peaked from overbought levels.  The VIX looks ready to go lower still tomorrow (Monday) which would imply higher stocks.

However, the weekly Dow chart doesn't look good at all.  In fact, it's almost the opposite of the daily chart.  On the weekly, the indicators are looking overbought and last week's big loss formed a nasty looking bearish engulfing pattern.

So all in all, I'd say that an advance might be possible tomorrow but the rest of the week's not looking so hot.  For that matter, all three market futures are actually lower right now by nearly half a percent.  That's the main negative point I'm seeing right now and it's worth keeping in mind.

Key numbers to watch on Monday: 1310.33, the ES daily pivot.  At 1:30 AM EDT we're sitting just below that at 1309.50.  If we can break above this before the open, that strengthens the outlook for the day considerably.  If not, look for a lower close.  Friday's Dow daily pivot was 12,478 (I don't have Monday's number yet but it should be pretty close to this).  We closed just barely above that at 12,480.  If the Dow opens up and stays above its pivot, again that would be bullish.  It's not guaranteed by any means though.  We'll see.

Rally possible next week, not necessarily tomorrow

Slim Pickens riding the bomb in Dr. Strangelove

 Yeeee hah!

As I read the latest shenanigans emanating from Washington regarding the debt ceiling, I am reminded of nothing so much as Slim Pickens riding his atomic bomb to oblivion in Dr. Strangelove.

This headlong rush to national suicide by what embarrassingly passes for our government these days is nothing short of appalling. And if the reports are to be believed, we now have the spectacle of Emperor Nerobama, the Empty Suit, walking out on negotiations today, late no doubt for his daily fiddle lesson. Note to all involved, both the Demicans and the Republicrats: grow up.

I am fed up with this and just about at the point where I simply want to sit entirely in cash until Doomsday on August 2nd. There is no way to make money in this sort of toxic, psychotic market environment.

That said, last night I was weakly bullish on today. It was looking pretty good for a while there, but the day ended up being a carbon copy of yesterday, with early gains evaporating, ending with a 54 point loss for the Dow. If there's anything positive about this, it's that it brought us closed to oversold than yesterday, with the short stochastic in particular very close to bottoming.

The VIX meanwhile is close to its recent upper range, though its upper Bollinger band at 22.93 is still over 2 points away. It's starting to look oversold, but there's no reversal pattern in the candles just yet.

And the dollar put in a doji suggesting the possibility that it might go higher tomorrow, which would be bearish for stocks.

On the other hand,  the pace of the decline in ES has been decelerating over the past three days and appears to be stopping right at the 50% Fibonacci retracement from the June bottom to the early July top.  This suggests a technical bottoming process in progress.

Finally, I note with great interest that J-Trader's buy/sell model has now given a "strong buy signal". His time frame appears to be on the order of a few days to two weeks. I'm a little surprised, but I'm not going to argue with that, given his trading record since I've been following it.

It does look like we're nearly oversold levels from which a rally is certainly possible, but I don't see the reversal on my charts for tomorrow. Maybe on Monday. But with the current insanity in the market, I guess anything's possible. As I said before, I'm getting ready to head for the exits if the clowns in Washington can't start acting like grown ups real soon.  It's just shameful.

Indecisive, but weakly bullish for Thursday

Yesterday's post was titled "Rally possible on Wednesday" and that's just what we got today.  It wasn't pretty though, with all the gains over by 10:30 AM and the rest of the day dribbling downhill.  But it was still good for 45 Dow points and I'll take 'em any way I can get 'em.

Tonight's call is a little harder.  We're between Bollinger bands and have no real clear guidance from the candlesticks right now.  One positive note is that the Dow respected its daily pivot at 12,544 this afternoon.  In addition, our friend the VIX was unable to make any headway above yesterday's high and ended making another hammer.  Also, the VIX indicators are now even more overbought than yesterday.  And the Dow indicators are approaching oversold levels, though not quite there yet.

The dollar meanwhile did indeed go lower today, as I called for last night.  While it too is in the middle of its Bollinger bands, its short stochastic suggests it still has room to fall some more tomorrow.  All of these factors are bullish for stocks, but not overwhelmingly so.

And while all three market futures are lower right now at 1:45 AM EDT, the ES indicators are now oversold.  We're at one of these points where the ES pivot will be critical tomorrow.  It's now at 1315.75, a bit more than 7 points above the current level.  If ES can break above that level in the rest of the overnight, or in early trading on Thursday, then we have a good chance to close higher.  Otherwise, look for lower.Same goes for the Dow daily pivot.

Interestingly, J-Trader's Buy/Sell model came close to going long this afternoon but not quite.  That pretty much sums up my feelings about the market for tomorrow.  I've still got my long hat on, but only because I can't find a real good reason to remove it right now.

Rally possible on Wednesday

Well for a while there I thought my call for a lower close today was going to go awry, but Ireland came to the rescue and they knocked 'em down into the close and saved my call for a down day.

So now what? I think the clue to tomorrow is in today's chart du jour: the daily VIX. After another gap up day that took us over the 200 MA, the VIX finished at 19.87 after topping just over 20 to form a hanging man. That is a reversal signal. Interestingly, I heard some talking head on CNBC a few days ago say that the market wasn't going higher until the VIX hit 20.  Today it hit 20 and backed off.

Supporting the idea of a lower VIX is its RSI, which entered overbought territory today. The RSI on the VIX is a pretty reliable indicator. Once it turns red, the VIX goes lower either the next day or the day after. Lower VIX, higher stocks.

I also note that J-Trader's buy-sell system issued a short cover today. J-Trader clearly has the hot hand lately and I'm loathe to call for a downside continuation in the face of this.

Then we note that the dollar index put in a classic dark cloud cover today, with all its indicators it overbought levels implying that it's going lower tomorrow. And we know that lately, lower dollar equals higher stocks.

Finally, all three market futures (ES, NQ, and YM) are up nearly a third of a percent at 1:20 AM EDT. And ES in particular is now above its daily pivot, now at 1309.75. Admittedly that happened because the pivot went lower, not because ES went higher. However, any time ES is above its pivot, that number becomes support.

The red trend arrow remains in place until I actually see a reversal, but the upshot is that I'm taking off my short hat and reaching for my long hat for tomorrow.

Sell-off not done yet

Last night was one of those no-brainer calls.  The market telegraphed today's 151 point plunge from a mile away.  And you know what?  It's not done yet.  All of the factors that were in play last night are still there: oversold indicators that have (finally) peaked, a hanging man confirmed by a long red candle, lower futures, renewed rumblings out of Europe about Greece, or now it's Italy, heck it's Greetaly, mama mia, rhe whole deal.

And the VIX, which I did not mention last night, has come alive, with a big gap up green candle to close at 18.39, bumping right up against its 200 day MA.  That puts it right in the middle of its Bollinger bands and with its indicators all still just coming off highly oversold levels, it's still got plenty of room to run.  Higher VIX, lower stocks.

I don't know where this one is stopping but I'm pretty sure the market tomorrow is going lower again.  I took out some SDS again today to hedge my long positions.

Going lower on Monday

Well my forecast last Thursday night for Friday proved wrong, although I still don't think there was much of a clue in the technicals that night to Friday's 62 point Dow decline.

But tonight, the picture seems a lot clearer.  With the both the Dow and the ES putting in hanging man candles last Friday and the Dow falling out of its 8 day long ascending regression trend channel, and all three futures down by around half a percent right now at 1:30 AM EDT, ES having fallen below its daily pivot, now at 1346.75, and J-Trader's system still holding a short signal, it's looking like a pretty good bet that we're going lower tomorrow.  Also, the indicators have now peaked and fallen out of the "overbought broken" status.  This indicates a trend end too.

One more up day possible

My call last night for a higher close today proved to be correct, with the Dow gaining another 93 points.  Today's close at 12,719 leaves us just 62 points shy of the May 10th high, and not much further from the YTD high on May 2nd.  Tonight I'm going to base my call entirely on the candlestick pattern, since I'm just not feeling the love from either the futures (which are basically flat at 1:45 AM EDT) or the VIX (which is acting oddly today).

That leaves us with a recent daily chart starting on June 27th with five big solid green candles, one small doji of indecision and then two more green candles, smaller but still solid, indicating that the indecision was resolved to the upside.  There is not even the hint of a reversal pattern here and volume increased today over yesterday, so I'm going to have to say that we still have room to run at least another 50 points higher tomorrow.

The indicators are all still in "oversold broken" territory, so there's nothing to see there.  J'Trader's Market Analysis system went short today.  I think that might be a day early, but we'll see.  I could be wrong, and Lord knows I am often enough, but I just don't see the selling pressure yet.

Oh, one more thought - there are some big jobs numbers coming out tomorrow and the buzz on the Street is that they're going to come in BTE.  I don't know how they decide this, but these rumors seem to be right more often than not.  So that could also provide a boost to tomorrow's results.  That's all she wrote.

Indecision resolved to the up side, more gains possible

Yesterday, I wrote that the market should be going lower today. The 56 point gain in the Dow we got instead proves once again why you should never use the word "should" when talking about the market. In my defense, I will point out that I was concerned that the futures were not echoing what looked like bearish chart patterns. Turns out I should have (oops - there I go again) had more faith in the futures.

One call I did get right was the VIX, which also went higher today, though not by much. Anyway, if you look at the Dow chart, you see Monday's big run-up followed by yesterday's doji indicating indecision. The decision was made today, and it's up. And having broken out over the resistance highs from the last two days, it appears that there there is no further resistance until 12,760, another 150 points from here.

And the futures are up once again this evening at 1 AM EDT, only tonight they're up even more than last night at this hour, with ES up over half a percent, a strong showing for this hour. I learned that lesson last night - I'm not going to vote against the futures tonight.

We're apparently now in one of these phases where the indicators all get broken at oversold levels and lose their predictive power. Sometimes this can go on for days. Back in March, we stayed oversold for two whole weeks before pulling back.

I checked on J-Trader's Market Analysis and note that he has canceled his short signal too, so I guess I wasn't the only one who got fooled here. Sometimes it just all boils down to, you can't fight the tape, the trend is your friend [insert favorite market cliche here] so my best guess is that we're going higher again tomorrow.

More mixed signals

Yesterday I was thinking today would go lower and indeed it did, though admittedly not by much.  And the Nasdaq actually managed to go higher, but it often marches to the beat of its own drummer, so I don't really follow it.

Now here's what's odd.  It's 1:15 AM EDT right now and all three futures are up.  ES is up 0.17%, NQ is up 0.22% and YM is up 0.15%.  Why is this odd?  Because today the Dow put in a small doji at the top of last Friday's tall green candle.  It almost looks like day 2 of an evening star.  And the Dow's indicators are all topping at overbought levels.

What's more, I was right about the VIX today too.  Remember those two hammers from last week.  Well they pounded the VIX higher today, leaving its own indicators looking like they have bottomed.  The VIX certainly seems poised to go higher still tomorrow, implying lower stocks.  And J-Trader's system is sticking to its guns on its now two day old short call.

Returning to the Dow again, today's close made two days we hit the 12,570 level - a resistance line we tried to break, unsuccessfully, twice in May.  And a quick look at the daily dollar chart looks like it's getting ready to go higher tomorrow too, implying lower stocks.

It looks for all the world like this market should be going lower tomorrow.  In fact, I even took out a position in SDS today to hedge against that.  So I don't get it - with all these warning bells going off, why are the futures higher tonight?  I always hate to go against the futures, but right now I have to go with the charts and say tomorrow is looking bearish.  It will be most interesting to see how this plays out.

Profit taking possible Tuesday

I hope you all had a pleasant 4th of July and a nice break from the markets.  But now it's time to get back to work.  After last week's monster advance, I'd be tempted to go short at time point just on the principle of not being too greedy if nothing else.  Indeed, J-Trader's timing system (that I mentioned in my previous post) has apparently issued a short signal.

So let's start off with one of my favorite charts, the VIX. In this daily chart, you can see how the VIX hit its lower Bollinger band three days ago and has been dribbling down it ever since. It's now formed two consecutive hammers, and as we know, two hammers are better than one. With its indicators all oversold and having bounced off its recent 15.5 support area, I'd say the VIX looks more likely to go higher than lower at this point. Higher VIX implies lower stocks. If not tomorrow, then the next day.

Meanwhile, the Dow daily chart is definitely in overbought territory now and its short stochastic looks ready to execute a bearish crossover. Its momentum has also peaked and is headed lower. The Dow's daily pivot at 12,528 has also moved much closer to the last close at 12,583. A break below the pivot tomorrow would definitely be bearish. We could conceivably open below it for that matter.

Finally, not much guidance from the futures at 1 AM EDT. NQ and YM are up a bit and ES is down just 0.15%. Notably, the ES pivot is now 1332.25 and we just bounced off that level in the last five 5-minute candles. A break under this level before the open Tuesday morning will also be bearish.

This being a holiday-shortened week in which I think many of the big players will be on vacation, it's possible anything could happen, but right now things aren't looking too positive. Though I hesitate to actually put on my short hat just yet, I'm reaching for it and I'd definitely be looking to take any short-term profits tomorrow . In any case, I wouldn't be looking to be a buyer at these levels.

Happy Independence Day

Happy 4th of July!

Today we celebrate Independence Day and the founding of America, a land that for all its faults, is still the envy of the world.

A Trader's Library

It's the start of a long weekend, so I thought I'd share what I read every day to get a feel for the markets.  There's so much stuff out there, it's impossible for any one person to cover it all.  But here's what I've found useful, so head to the beach, load up your laptop or Eye-Pad, and enjoy!

http://www.marketwatch.com/  Marketwatch is a nice web site full of both news and interesting commentary.  It also has a very active user community that never fails to chime in on most any topic.  I find that reading the comments is often as useful as the articles, mostly for their contrarian value.

http://www.finviz.com/  Finviz is the Swiss Army knife of financial web sites.  Its main focus is on charts and numbers rather than news and commentary.  It's fast, free, and well laid out.  It also has a great stock screener.

http://seekingalpha.com/ Seeking Alpha is more for the serious trader than Marketwatch.  Lots of excellent news and commentary here too.  The user contributions tend to be more sophisticated than over on Marketwatch.

http://www.morningstar.com/ A relatively new addition to my reading list, Morningstar has an extensive site, most of which I haven't explored yet.  This is where I get the Morningstar Market Fair Value Indicator I often refer to in my posts.

In addition to these web sites, there are a few blogs I read:

http://quantifiableedges.blogspot.com/  Quantifiable Edges, by Rob Hanna is interesting.  Most every day, he does an analysis of what happened in the past when certain current market trends existed, carrying out the results of a hypothetical investment 10 days.  There's also a paid section (that I don't subscribe to).

http://humblestudentofthemarkets.blogspot.com  Cam Hui is the Humble Student of the Markets and publishes interesting macro-view commentary on market-related topics.  His blog is well-written, well-researched, and thought provoking.

 http://www.buysellmodel.com/ This is J-Trader's Market Analysis.  He recently was kind enough to contact me and bring this blog to my attention.  He has a quant system going that he makes freely available and posts daily updates.  I've just started following this one, but it looks pretty impressive so far.

This isn't reading, but I also generally have CNBC going on a separate monitor, usually with the sound down low.  I never make trading decisions based on the endless parade of talking heads that appear there, but I find it is a useful source for breaking news.  You can subscribe to a real-time news feed, but then you're stuck having to watch and evaluate every item that pops up to get any benefit from it.  CNBC does this work for you.

And finally, although this one is no longer published, it is the greatest gem in the blogosphere on the psychology of trading as far as I'm concerned.  I refer of course to the great Dr. Brett Steenbarger's http://traderfeed.blogspot.com/.  He was kind enough to leave it up when he took his services private last year.  Even though it's no longer current, I highly recommend it to anyone who trades the market, from beginner to expert.  There's something in here for everyone.

All of these sources are free.  I don't subscribe to any pay services, not particularly because they're any better or worse, but simply because there's already so much good free information out there, I would never have time to get around to anything more.

Disclaimer:  I have no affiliation with any of these information sources in any way other than as a regular reader.

The Dow comes through - can it last?

Last Sunday I was very wrong about my call for the week.  But I think I made up for it last night when I gave nine reasons why the Dow would go up today, and only two half-hearted reasons why it might go down.  Turns out 9 beats 2 every time with a whopping 168 point gain to start off July with a bang and cap off an impressive solid five day winning streak.  I started a new rising regression trend channel and it came up with a Pearson coefficient of 0.991, about the highest I've ever seen.  And that's reflected in the daily momentum, which now stands at 68.75.

And that's sort of a problem.  We don't like to see momentum get this high because at these levels it's an overbought indicator.  For that matter, RSI is now in overbought territory and the short stochastic is peaking and looking like it's about to execute a bearish crossover.

I'm going to take a longer view on the monthly chart later this weekend, but for now I will say that after this great run, my initial reaction is to be cautious for next week.  More details to follow.

Nine reasons why we can go higher on July 1st

One thing I like about the market is there's always something astonishing going on. Today it was the 154 point solid green candle the Dow put in. In just four days, we erased very nearly all of the losses from the entire month of June. Amazing.

So after such a big four day rally, can we still possibly go any higher? I get nervous saying it, but I think we still can, and here are no fewer than nine reasons why:

1. Today's gain was a solid green candle with no hint of indecision to it, not like a doji or other potential reversal indicators.

2. This week started off with a three white soldiers pattern and that's usually a very good rally indicator. Today's gain confirmed that.

3. Tuesday we exited the descending regression trend channel that's been bedeviling us since the start of May. That was a bullish trigger, and when that trigger was pulled, the bull ran like mad.

4. Tomorrow is July 1st. The first day of the month is historically bullish.

5. Today the Morningstar Market Fair Value Indicator, which has been gaining over the last few days went back over 1.0 for the first time since the beginning of June. That is not consistent with further market deterioration.

6. Both the Dow and ES are well above their daily pivot points, though not yet so far as to be overextended.

7. Just as the market put in a double bottom this week, the dollar put in a double top and broke under its confirmation line today. It shows no sign of turning tomorrow. Lower dollar, higher stocks.

8. The Dow weekly chart is still looking very strong.

9.  Volume has been increasing for the past three days, indicating we're not running out of buyers just yet.

And I've only got two contrary signs:

1. The VIX fell again today as I had expected and actually hit its lower Bollinger band before ending up forming a hammer. That is a potential reversal sign. Right now the VIX looks to have more chance of moving higher tomorrow than lower. Higher VIX, lower stocks. But remember, the market can lag a turn in the VIX by up to two days, so even a higher VIX tomorrow does not necessarily preclude further gains.

2. The ES indicators have now climbed into overbought territory.  But that can often go on for several days before the top is in, so that's not really 100% reliable at this point.

I guess we'll just have to see.

Still more gains possible

[Note - unfortunately, Blogspot went down last night just as I was about to publish this post. So here it is on Thursday morning instead of Wednesday night. Sorry.]

Sunday night I wrote that the outlook for this week was "very gloomy". Right now, that's getting my nomination for my worst call of the year, and it's only half over. We've been up three for three. And like Doublemint gum, today's 73 point gain in the Dow gave us two, two, two bullish signals in one. First, we broke above the 12,189 resistance level that formed the top of the double bottom formed this month. That's a classic bullish signal. And second, the long descending regression trend channel from May 2nd is now definitely broken.

In addition, the daily 200 MA (dotted orange line in the chart) is now flattening out as the gains from earlier this year fall over the event horizon. This makes it harder for any drops to hit it (now at 11,802). And while we did hit the upper Bollinger band today, the weekly Dow chart remains quite strong.

I actually think we still have room to run higher over the next two days, mostly based on the VIX. Yesterday the VIX put in a big hanging man. That was confirmed today with a long red candle providing a nearly 10% drop to close at 17.27. VIX now has no support until 15.5 and its lower Bollinger band isn't til 13.45. Its indicators are also all on their way lower.  Lower VIX, higher stocks.

A tale of two regressions

Last night I was so uncertain I didn't even attempt making a daily market call. Turns out the Dow went up another 145 points. Where it ended is important. This number, 12,189 (blue line) is exactly the highs from our earlier rally this month. It was also support for the April lows and even the early March consolidation we saw.

I see three things going on here. First is it looks a lot to me like we have put in a double bottom this month, and that is a bullish reversal indicator. It remains to be seen if we can break out above the 12,189 resistance line to confirm that.

Second and third are the two regression trend channels on this daily Dow chart. We exited the first, shorter one eight days ago. We saw the bullish setup, and then the trigger, and we have indeed since gone higher. Now look at the other longer RTC going from May 2nd. Today we closed convincingly above its right edge. That is a bullish setup. If we can close outside the channel tomorrow, that will be a bullish trigger. That makes two bullish technical signs.

Meanwhile the weekly chart is also still looking bullish with the RSI and stochastic both having bottomed off highly oversold levels. There's not much guidance from the VIX tonight, having fallen into the middle of its Bollinger band range.

The futures meanwhile have been sagging a bit into the overnight and are now down about 0.2% at 1:30 AM EDT. ES is at 1291.75 which puts it in striking distance of tomorrow's daily pivot of 1287. That's tonight's key number, if we do go lower into the night and bounce off the pivot, things are looking good for tomorrow. But if we go through the pivot, then watch out.

After two days of such large gains (and note the declining volume there), I'm not at all sure that we can sustain this momentum into tomorrow, but I'm thinking we have a good shot of ending the week higher. Note that the week ends on July 1st, and that is a historically bullish day.

Whipsawed

Last Thursday night I thought the market would go up on Friday.  Instead, it went down - big.  Last night I thought the market would go down today and that's right, it went up - big.  With today's gain virtually equaling Friday's loss, I don't see any predictive power in the daily charts at all right now.

When we get into states like this, I like to back out to the weekly chart.  This paints a much more clear picture and a very bullish one as this Dow weekly chart shows.

On the weekly chart, all the daily lines kind of just merge together, but what emerges is a picture of support forming around the 12,000 level. But the most prominent feature is the stochastic (bottom indicator) which is currently highly oversold and has just executed a bullish crossover. This is a very reliable indicator and right now it's more oversold than I've ever seen it, including at any point in the Great Recession.. The current weekly candle has also already exited the descending RTC channel from the beginning of May, and that's also bullish.

On the other hand, the monthly Dow chart still looks weak. So at this point about all I can say is that on a weekly basis, things are looking up, in the longer term, say a month or two, not so hot, and I have no idea where we're going tomorrow.

Very gloomy weekly outlook

With a fair number of good news items out late Thursday and the futures trending higher, I really thought there would be some follow-through on Friday to carry the market higher, despite charts that looked bearish.  Wow - was I ever wrong.  It looks like I am going to have to put my short hat on now simply because I had to eat my long hat.


Not that there isn't ample reason this Sunday evening to be gloomy for the upcoming week.  Check out the daily Dow chart here. This chart has the same markings I put down on June 12th showing four possible 200 MA intercept points. My guess back then was that we were headed for point C, being 11,819 three days from now. After last week's four day rally, it was looking like the intercept might not happen at all. Unfortunately, it now looks like we are right back on track for point C. And when we hit it, the market is going to go lower, probably to retest the March lows at 11,614. If that fails to hold, things could get really ugly.

Right now, the Dow has come off its overbought levels of last week but it still has lower to go before being anywhere near oversold. Of greater concern is that the selling volume has been increasing over the last three days. Also,the last week of June is historically a poor performer.

Next we see that the VIX executed a bullish engulfing pattern, which is generally a strong indicator that it is ready to go higher, and that is bad for stocks. Also, the VIX's indicators have all bottomed and its stochastic in particular has executed a bullish crossover. VIX higher, stocks lower.

Then we have Morningstar's Market Fair Value indicator, which remains at 0.95 and has been below 1.0 all month. We're not going to see a meaningful rally until that goes higher.

Add to this that all three futures I watch (ES, NQ, and YM) are down at the moment at 1 AM EDT by about a quarter of a percent, and the fact that last week's good news failed to inspire a rally as I had thought it might, and I'm not seeing much to drive this market higher tomorrow. I'm going to look for a lower close tomorrow, and quite possibly for the week as a whole. I was right 3 out of 5 times last week; let's see if I can do better this week.

Friday prospects looking good

Give it a rest

Technical analysis is a great tool and I use it all the time, but I'll admit that there are times when you need to give it a rest.  I believe that tonight is one of those times.  Technically, the daily Dow chart looks like it's rolling over again.  Four nice up days, then a dark cloud cover and another down day today  Not so hot.  Then all the indicators have peaked at oversold levels and started heading lower.  That's usually a bearish sign.

But not tonight.  I am going to call tomorrow higher right here and now because I believe the market is now in one of its news-driven modes rather than its usual technical mode.  And the news today is quite bullish.  First we had the big oil dump which sent the price of crude lower.  Next we're hearing positive noises about the EU and IMF  concerning the Greek problem.   And now we hear that the Premier of Communist China made comments in the Friday edition London's Financial Times to the effect that he's declaring victory over inflation.

The futures are definitely liking something right now, with all three in the green, and I'll bet this is what's driving them.  ES in particular  is up nearly six tenths of a percent at 1:30 AM.  And at 1284.50, it is well above Friday's daily pivot of 1271.58.

Now I'll admit that today's Dow candle could be taken either as a hanging man if you consider it as a termination of our earlier four day winning streak, or a hammer, if you take it as a reversal of yesterday's losing session.  I'm leaning more to the hammer theory at this point.

Then the VIX put in one of these topsy-turvy days where it closed higher on a gap-up red candle.  When the VIX has one of these gaps up in the middle of its Bollinger bands, it very often tends to resolve by filling the gap.  If tomorrow holds true, then the VIX should go lower, and stocks higher.

Given all of this, I'd be nervous going into Friday with my short hat on.  I'm three for four on market direction calls this week.  Let's see if I can make it four out of five.

Lower Thursday looking more likely

Last night I wasn't quite sure how today would go, though I was feeling a bit negative about things.  Well we were actually up a good part of the day until Uncle Ben came to my rescue by tanking the market with his speech this afternoon.  Thanks, pal - you helped me improve my record for the week so far to 2 out of 3.

In a way, he made my job easier for tomorrow though.  Today's Dow candle ended up forming basically a bearish dark cloud cover.  The bullish trigger I was looking for out of the May 2nd descending RTC did not occur, so we remain in that downtrend, just.  Today's 80 point drop also caused the RSI and momentum to put in an overbought top.

Meanwhile, the VIX put in a second hammer today.  It's 18.52 close left it just under  its 200 day MA at 18.79 and its daily pivot at 18.68.  And its indicators inched closed to showing oversold.  It's looking like the VIX would rather go higher tomorrow than lower, a bearish sign for stocks.

Looking at oil next, it appears to have put in a daily bottom yesterday and could move higher tomorrow.  That's also bearish for stocks since oil is now back in an inverse correlation with the markets.

Turning to the futures, they're all lower by about a third of a percent at 1:30 AM EDT.  Tomorrow's ES daily pivot is 1284.33, virtually the same as today, and we're already well below that at 1275.25.  We won't go higher unless we can break above this level.

Put it all together and what do you get?  Looking for lower once again.

The weekly charts, on the other hand are a different matter.  I think we're pretty safe from hitting any 200 MA's this week.  The Dow weekly chart right now is looking extremely oversold.  We'll take another look as this week's candle fills in.

Looking a bit negative for Wednesday

Sunday night I was wrong in calling the market lower for Monday, but I kind of redeemed myself by looking for higher today.  We got that in a big way with a 110 point pop in the Dow.  Today's action, coupled with three consecutive previous up days, makes the theory of a down week look a lot less likely.  And the 200 MA intercept I've been predicting for Friday - well I think we can fugeddabout it.

The Dow is now completely out of the June 1st descending RTC.  The RTC worked perfectly here.  Friday was the setup, Monday we cleared the line and that was the trigger.  Today was the payoff.  In fact today's gains now give us a bullish trigger on the longer term May 2nd descending RTC.  We also handily cleared the 12075-12,100 resistance zone today - also bullish.

That said, I'm not so sure about tomorrow.  The VIX did in fact go lower today, but it put in a classic hammer in the process and that's a reversal candle.  It also found support right at its 200 day MA which could help keep it from continuing lower.  VIX no lower, stocks no higher.  And all three futures are lower, though not particularly convincingly so.

So I don't know.  The whole setup is looking a lot like what we saw back on May 24th through the 31st, almost candle for candle, and I sure got burned jumping over those candles.  So now I need the Dow to put in a green candle entirely outside this May 2nd RTC before declaring the downtrend over.  I sure don't want to get fooled by that one again.

And then tomorrow is a Fed day again, so there's no telling how that will affect the charts (though I do not expect any real earth shattering statements from them tomorrow).  So bottom line: my bias for Wednesday is slightly negative, but I'm not really confident about it.  It will be a key day technically to determine if we can break our month and a half long down trend.

Another up day possible Tuesday

Oops.  What can I say?  I thought for sure we were going lower today.  In retrospect, I let the recent wave of negativity, along with some bad futures numbers late last night overcome my views of the technical indicators which have been screaming "oversold" for some time now.  I also failed to give enough weight to the all-important VIX which hit its upper Bollinger band.  That in itself is always a bullish sign for stocks.

And that was the problem, because after seeing oversold indicators for so long, but still going lower, eventually you stop believing in the indicators, like the boy who cried wolf.  But in the end the indicators came though and we went up today, an impressive 72 Dow points, not down as I had thought last night.

Now this presents us with an interesting problem.  With three consecutive up sessions, I have to wonder if the Dow is going to encounter the 200 day MA this Friday after all.  Today's close at 12,076 parked exactly along a two week long resistance line.  Tomorrow's action will be key.  If we can break up above this level, then I'm more encouraged for the end of the week.  Today's action, a long green candle, was bullish enough.  We broke over the daily pivot around 10 AM and it was up up and away from there.

Similarly, ES broke above its daily pivot yesterday and hasn't come back since.  Tomorrow's pivot is 1267.25.  We're comfortably above that at 1274.75 right now at 1:25 AM EDT.  All that's left is to see if we can finally put in a higher high, something that hasn't really happened since the beginning of May.  That would be quite bullish.

In the meantime, we have exited the Dow's June 1st descending RTC, also a bullish sign, but we remain inside the longer May 2nd descending RTC, so that trend remains down.  However, it will only take two days to exit that one if we continue along the lines of the last few days.  And if that happens, that would really be bullish, given the week historical nature of this week in June.

Finally, with the VIX taking a big tumble today from its upper Bollinger band (as I thought it would) and all three futures up by non-trivial levels I have to go with my long hat for tomorrow.  I could be wrong.  God knows I was today.

The Week Ahead

So much for streaks

Well I guess it turns out  that six was the magic number.  Last week the Dow snapped a record but one losing streak at six weeks in a row, with a 43 point gain to finish the week up a modest 59 points.  So for the folks holding out for a record tying seven straight week down, close but no cigar.

In a way, I would have been happier if the week had ended lower.  That would have decreased the historical odds that this coming week would end lower.  Had we gone down seven weeks in a row, that would put us in record territory, since the Dow has never gone down more than seven in a row, at least not in the 82 years a I looked at (see earlier posts).

Greece is the word

So where do we go next? A tip of  the Hatlo hat tonight to Greg Salvaggio, a senior vice president for Tempus Consulting who made what I'm going to call the Quote of the Week:

“The ECB made a valid point: if it was Greece alone they’d let it default, but there’s a strong argument for the contagion effect and the precarious state of markets since the financial crisis,"

So there you have it: Domino Theory, 2011. As Greece goes, so go we all. If we can avert this modern day Greek tragedy, undeserving though they may be, we may yet avert the dreaded double dip.

 The lessons of history

So much for the good news. Now here's the bad news, courtesy of The Stock Traders Almanac:

"Week After June Triple Witching, Dow Down 11 in a Row and 18 of Last 20"

Holy moly, 11 in a row??  Last week I asked if you were really going to fight the odds that the market could continue lower after six straight down weeks. Tonight I have to wonder about these particular odds.  18 out of 20?

The futures

But, but - tonight we take a look at the ES futures, and note that we're now looking at the September contract, ES U1.

Since it's a new week, here's the weekly chart. Two things jump out: we're technically quite oversold, and we're at a decent support level at 1263 (blue line). After two long red candles, last week formed a doji, indicating classical indecision in the market. this is a reversal indicator, though admittedly one that requires confirmation.

The RTC for the daily ES chart shows that we have exited the descending channel that began on June 1st. That is a bullish setup. The Dow is still headed for an unpleasant encounter with its 200 day MA as I've discussed previously, however, the momentum of its descant seems to be slowing.

I think Monday's action will set the tone for the entire week. I'll have a better idea later on tonight when I can get a handle on the overnight - come back around 2 AM for an update.

Late night update

Well, it's 1:30 AM and the futures have spoken.  All three are down and ES is not only down more than half a percent, but at 1259.25 it's a full 8 points below Monday's daily pivot at 1267.25.  And that also means the 1263 support line caved in just like that.  Apparently Greece may be the word but it isn't the last word, and traders are not impressed by the Europeans' latest can kicking efforts.  At least not tonight.

So while we do have some mixed signals among the tea leaves for the week ahead, I think we're going lower tomorrow.