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- Monday weakly higher, low confidence. Bull-bear ratio is 4:4.
- ES pivot 1123.42. In play: current price is just above.
- Rest of week bias uncertain, market is news-driven..
- Monthly outlook: bias up on technicals.
- ES Fantasy Trader holding long position..
Last Thursday night I called the market higher on a strong bull-bear ratio. After a see-saw day, the Dow finally finished up 38 points. Perhaps more important was simply the fact that it did not extend the horrible losses of the previous two days. Let's run the bull-bear cases to try to figure out where we go next.
The technicals
The Dow: Friday's candle was not quite a classical hammer but pretty close. Dead cat bounce or reversal indicator? Hard to say, but the awful losses on the week put the indicators all squarely in oversold territory. Every time we've been down here the last two months, the market has rallied. We also successfully retested the August lows on both Thursday and Friday, so I have to say +1 bulls here.
The VIX: After putting in a big gap up evening star on Thursday, the VIX went on to form a spinning top on Friday that was just a bit higher, but ended up with a red candle. With the VIX now over its upper Bollinger band it is much more likely that it will go lower Monday. The VIX rarely spends any more time than this above the BB. Also the big gap from Thursday will be wanting filling. Lower VIX, higher stocks, so +1 bulls.
VIX futures: Again, the futures look very similar to the VIX itself, forming an evening star of their own on Friday. With their indicators quite oversold now, the futures look ready to go lower, implying a lower VIX, so higher stocks. +1 bulls.
Market index futures: These put in a nice bump earlier Sunday evening on some positive news out of Europe but then reversed course just after 10 PM on, yes you guessed it, some negative news, or should I say noise, out of Europe. Sigh - I was all set to give out a point to the bulls here but with all three futures in the red this one has to go to the bears right now (1:15 AM EDT).
ES daily pivot: Now is 1123.42. ES is now just barely above this and falling fast as I write. If it falls through, that will be +1 bears.
Dollar index: After a huge green candle Thursday, the dollar put in a hanging man Friday. If this potential reversal is confirmed Monday, then the dollar is going lower. This is balanced off by the continuing turmoil in Europe, so it's a tie and no points given.
Oil: Had a bad week last week and is now at support having put in a doji on Friday. With oversold indicators it looks to have more room to run higher than lower. Oil now being in sync with the market, this is +1 bulls.
Morningstar Market Fair Value Index: Fell again to 0.79, putting the index at its lowest levels since the depths of the October 2008 crash. This alone is bullish, but I need to see it reverse before awarding a bull point. And since it's actually still going down for now, that's +1 bears.
History: The Stock Traders Almanac says that the end of September is "prone to weakness", so +1 bears. Reminder: the new 2012 edition of TSTN is about to come out. I highly recommend this fascinating book to any active trader.
And the winner is...
A tie! The bull-bear ratio sorts out to 4:4. Friday afternoon, my intuition was that we'd be going higher on Monday but now I'm not so sure. Since the bulls and bears are so evenly matched, it looks like Monday will be another key pivot day. If ES breaks under its daily pivot (which it still hasn't yet), then we're going lower. If it bounces off or just continues higher, then we'll close higher.
Given how oversold everything is looking right now and after the huge dump we took last week, I'd still expect something of a rebound or at least an attempt at a rally on Monday. If we don't in fact go higher Monday, I become more confident of a gain Tuesday. We'll see.
ES Fantasy Trader
No news here. We're still holding onto last Thursday's long position. CNBC Million Dollar Portfolio game update: the Night Owl gained a bit and is now ranked 97.09%.
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