Friday higher if ES holds above pivot

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

• Friday higher, fair probability.  Bull-bear ratio is 8:1.
• ES pivot 1129.75.  In play - watch for holding higher.
• Next week bias up unless 200 MA broken.
• Monthly outlook: bias down.
• ES Fantasy Trader holding long..

Recap

I had a bad feeling last night when I wrote my post.  Not that the market was going to tank today, but more of a sort of tactical anomie, a feeling that the Lavalite World was coming home to roost.  Maybe the world really is falling apart.  My highly hedged call for Thursday was simply "bias lower", so that at least was right, but I sure wasn't expecting a 391 point bloodbath, down over 500 at one point.  I offered two theories; one was a big jump higher and the other was a small decline.  Holy moly.  Is there more to come?  Let's take a look.

The technicals

The Dow:  Two consecutive days of big losses have brought us well into oversold territory.  Of note today is that the August lows held.  We also hit the lower Bollinger band, which could signal the end of the decline. Also, every one of the last 5 times we've had big declines in the Dow since the VIX went ballistic have been followed by up days, so +1 bulls even though the candles don't dhow it.  If nothing else, a dead cat bounce is in order.

Daily VIX

The VIX: Pay close attention to the VIX today.  It put in a giant gap up evening star doji that carried it right to its upper Bollinfger band.  Today's close at 41.35 is also right at its recent resistance in the 40-43 area.  And its indicators are all approaching overbought levels.

The evening star is a powerful reversal indicator.  Also, whenever the VIX gaps up to its upper Bollinger band, it rarely spend more than one more day there before falling again.  Lower VIX, higher stocks, so +1 bulls. 


VIX futures:  This chart looks very very similar to the VIX itself.  With this type of pattern, the futures seem to have more room to go lower than higher.  Lower futures -> lower VIX, +1 bulls.

Market index futures: All three looking very healthy (for a change). After recovering a bit into the close, they've been continuing to drift higher all evening.  ES is now up a significant 0.73%.  +1 bulls.

2:15 AM Update: ES has now indeed fallen below the pivot.  If it doesn't return by Friday's open, then all bets are off.

ES daily pivot: Now 1129.75.  We're actually above that now (1:10 AM EDT) but not by much at 1133.25.  That puts the pivot in play.  Holding above this between now and the open is bullish, falling through it is bearish.  +1 bulls for now.

Dollar index:Put in a huge green candle today that took it right up to its upper Bollinger band.  With oversold indicators, technically it looks lower Friday which should be good fot stocks.  +1 bulls.

Oil:Took a huge dump today that took it right to its intermediate term support which held.  Now oversold indicators, especially a stochastic making a bullish crossover and I'm looking for a bounce in oil Friday.  With oil now in sync with the market, that's +1 bulls.

Morningstar Market Fair Value Index: Sank to 0.82 today.  Generally, a declining index is bearish, but we're now just 0.01 away from the lowest reading of the year, hit on 8/8 and 8/19.  On the next day after both of those, the market rallied, so +1 bulls here.

History:Tomorrow, the September post-witching week will mercifully finally be over.  It has certainly lived up to its reputation as dreadful.  And according to The Stock Traders Almanac, Friday is the worst day of this bad week, so +1 bears.

     And the winner is...

The bulls with a bull-bear ratio of 8:1.  You can't argue with that so I'm looking for a higher close Friday.  Of course whenever the VIX is at these insane levels, all it takes is one news story about someone we never heard of quitting their job at the ECB because they didn't like the quiche in the cafeteria to send the market down some more.  But technically at least, we're going up.

ES Fantasy Trader

Going long yesterday was probably my most ill-advised trade of the year.  But rather than give up on it, I'm going to let it ride one more day.  Often patience is a money-making strategy..