Friday looking lower

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

• Friday looking lower, bull-bear ratio now 2:13
• ES pivot 1210.17 Staying under is bearish; Dow pivot near11,618, SPX pivot near1219.
• Next week bias lower, short term top in.
• Monthly outlook: bias up, all depends on Fed action in September
• ES Fantasy Trader holding short position, now profitable by 5 points.

The technicals

     Recap

Sneezy

Did you ever watch someone trying to sneeze? They go "Ah... ahh..." and you're just waiting and waiting for the "choo" but it doesn't happen? That's what the stock market has been like for the past two days. All the technicals, and I mean just about everything has been pointing to a break lower but it just wasn't happening. Well today Mr. Market finally gave us the "choo" we've been waiting for, with the Dow down 120 points.

The Dow made one last "ahh..." when it popped up at the open, but then quickly gave it all back and fell below the daily pivot.  Remember how I said to watch this today?  It never was able to recover from that.  The "choo" came around 12:30 with a breakdown away from the pivot and it was all downhill from there.

So does Mr. Market just have a tickle in his nose or is he coming down with something more serious?  Let's see how the bulls and bears stack up for Friday.  Each item below scores a point for the respective team.

    The bull case

1. The Dow closed Thursday right at its former resistance (from 8/15) at 11,494.  That now becomes support

2. Today's down volume was lower than yesterday's up volume.

     The bear case

1. The Dow closed at session lows.  The bulls made no attempt to buy the close.

2. There are some more jobs numbers coming out Friday.  They haven't been all that great recently.  It is not unreasonable to think that tomorrow's numbers may be bad too.

Dow daily

3. The Dow put in a bearish engulfing pattern Thursday - never a good sign.

4. The Dow closed outside its latest rising regression trend channel (see chart).  That is a bearish setup.

5. The Dow indicators have now all peaked at overbought levels.  Note in particular the short stochastic (bottom row) and how it just executed a bearish crossover.

6. Historically, the first day of September is up.  That did not happen today.

7. Market futures are guiding lower.  All three (ES, NQ, and YM) are down around a quarter percent at 1:35 AM EDT.  At 1197.75, ES is well under its new daily pivot of 1210.17.

8. The VIX finally closed higher today after putting in three dojis in a row.  Its indicators look to have bottomed in oversold territory.

9. VIX futures rose today, putting in the third green candle in a row.  Higher futures -> higher VIX -> lower stocks.

10. The US dollar continues to strengthen, putting in three green candles in a row of its own.  It is in the middle of its Bollinger bands and not yet overbought.  Higher $ -> lower stocks.

11. Today's sell-off was broad-based, with all S&P sectors going lower.

12. With a long weekend coming up, nobody wants to be left long with the VIX still over 30 and the Europeans PIGS still oinking away.

13. My pal J-Trader (see sidebar) has already gone short and is holding short.

     And the winner is...

Gosh, no contest tonight.  We need a mercy rule!  The bears take it, by a lopsided 13 to 2.  Look for a lower close on Friday.  I think that even if the jobs number come in BTE, any pop from that will fade as the day wears on.  And of course if the numbers are bad, we'll just continue going lower.

ES Fantasy Trader

The ESFT is holding its short position entered two nights ago (back on the first "Ahh...").  Our patience was rewarded and this position has come back from underwater and is now up 5 points.  I expect to close it out before 4 PM Friday.

One other trade: I bought SDS at 23.06 as a hedge just before Thursday's close.