Monday looking lower on ECB follies

Bonjour a nos lecteurs en France et la Suisse Romande!

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

• Monday lower, high probability.  Bull-bear ratio is very low at 0:8
• ES pivot 1166.25.  Current price is far below that.
• Rest of week bias uncertain, contrarian rebound possible mid-week.
• Monthly outlook: bias down, regardless of Fed action in September
• ES Fantasy Trader opened new short position at 1145.50.

     Recap

Last Thursday night I had a weak bias to the plus side if we could get the ES to go over its daily pivot.  It didn't and we didn't.  The catalyst of course was the abrupt departure of Jurgen Stark, who I had never heard of, from the ECB.  Thanks much for tanking my portfolio with your personal grievances, Jurgen.

We finish off the weekend with just a bit more reading.

   Everything you always wanted to know about the euro but were afraid to ask...

Here's good post from Mike Shedlock in Mish's Global Economic Trend Analysis yesterday explaining just what the heck is going on with the euro: "Euro Death Wish" and Global Finger-Pointing: U.S. Senior Official Blames Eurozone for "75% of the Dark Things Happening in the World" .  It's well worth a look.  Quick summary - it don't look good.

And if that doesn't explain it well enough, then this one from Michael Cembalest of J.P. Morgan should, using Legos: The debt crisis in the European Monetary Union:  I give this one four hoots up.

Of course you can't tell the players without a program so you'll have to read the article for the key.  But hey, this makes as much sense as anything else I've read.

The technicals

Time once again this Sunday night to round up the usual suspects and see who might salute on Monday.

Daily Dow

The Dow: Friday's big drop in the Dow  had several nasty implications.  First, it pretty much killed the whole double bottom idea.  Second, it prevented the establishment of a new rising regression trend channel from the previous three days.  Third, Friday's declining volume was up compared to Thursday.  Fourth, the indicators are not really very oversold looking, even after Friday.  Only the RSI has entered oversold territory, and just barely.

And last, I'm starting to see a head-and-shoulder in there, centered around the peak on 8/31-9/01.  FWIW, in this post, SPX Bearish Head Shoulders underway Target 1056, MarketTrend sees one in the SPX too.

Countering this, at least as of right now is the fact that on the last two oscillations since the lows of 8/09, each one has still put in higher lows and higher highs.

But given all of the above, I have to give this one is +1 bears.


The VIX: Despite a 12% advance on Friday, the daily VIX remains firmly in the Twilight Zone, that gray region around halfway between Bollinger bands.  So we move out to the weekly chart seen here  Several things stand out.  First, the VIX has some strong resistance around 40.  Friday's close at 38.52 leaves it bumping up against that level.  The VIX has only managed to put in a weekly close above 40 twice since March 2009.

Weekly VIX

Next, we got a classic hanging man on last week's candle.  That is at least a potential reversal indicator.  Then notice how the VIX has had an exponential run-up since mid-July.  Since the peak on 8.8, the VIX has been unable to make any further headway and has been simply oscillating in the upper 30's.  That looks like a good sign of lower numbers to come.  So overall, I think the weekly chart is pointing to a decline in the VIX.  I just don't see it happening Monday.  +1 bears.

VIX futures: On Friday the VIX futures gapped up big time and put in a tell green candle but did not pierce the upper Bollinger band.  The technical indicators are mixed, some suggesting further upside, others looking overbought.  In the past, the futures have shown a proclivity for climbing the upper Bollinger band, and given the continued unsettling news out of Europe, I'm going to give this vote to the bears.

Market index futures: All three (ES, NQ, and YM) are down at 1 AM EDT.  ES is down a full percent on a big gap down from Friday as the weekend has done nothing to tamp down the European mess.  ES RSI is now oversold.  OBV is now below levels from which previous rallies occurred.

However, ES has no support until 1121 and so still has room to move lower.  I'd expect an oversold/gap-filling rally at some point, but not Monday.  Maybe later this week.  So +1 bears..

ES daily pivot: Now 1166.25, and with ES far below that at 1145.50 at 1 AM EDT, I don't think this will be a factor tomorrow.  No points.

Dollar index: On Friday, the dollar blasted right through resistance at 54.32 and kept right on going through its 200 day MA at 54.37, also courtesy of the ECB.  (Recall that I'm using the Deutsche Bank US Dollar Index since it's free, unlike the $DXY anymore).  Two consecutive long solid green candles give no indication of any reversal any time soon.  The only caution here is that the dollar is going exponential here.  This sort of parabolic run-up can't go on much longer.  Overall, I see nothing right now pressing against the dollar so this one has to go +1 bears.

Oil: Oil fell out of its daily rising regression trend channel on Friday, a bearish signal.  Since the market is now trading in correlation with oil, this is another +1 bears.

Morningstar Market Fair Value Index: This fell again on Friday to 0.83.  FWIW, the last two reversal we had (on 8.9 and 8.19), this index hit 0.81 both times.  So I'd call this short term bearish (like for Monday) but indicating that we may be near a bottom.

History:  The Monday before Triple Witching is historically bad, according to The Stock Traders Almanac.  Really bad.  In 2001, the Dow dropped a whopping 14.3% this week.  In 2008, it lost 504 points on Monday,  So +1 bears here too.

     And the winner is...

The bears, I'd say, by a knock-out.  The bull-bear ratio is a whopping 0:8, the worst reading since I started computing this number.

ES Fantasy Trader

Tonight the ESFT is going  short tonight at 1145.50.  I'm looking for a contrarian/oversold rally at some point later this week.  I just don't think it will be Monday.