Monday going lower

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

• Monday lower, high confidence.  Bull-bear ratio is 3:7.
• ES pivot 1135.75.  Current price is far below that.
• Rest of week bias up, on technicals.
• Monthly outlook: bias down, on technicals
• ES Fantasy Trader opened new short position at 1118.75.

Recap

Thank God last Friday finally ended.  And last week too for that matter, with all that psycho-VIX fueled whipsawing going on.  And the month.  And let's face it, the whole quarter was a train wreck.  I vaguely expected the market to be able to go higher on Friday but the case wasn't strong.  I'm now glad I didn't put on any long trades then.  But I say foo on all that and let's move on to the spooky month of October.

The technicals

The Dow: On Friday, the Dow broke through its important 11,000 support (though not by much) to close at 10,913.  Its daily stochastic is just executing a bearish crossover and OBV remains alarmingly high.

The weekly chart on the other hand presented us with an inverted hammer.  However that's not a really high reliability pattern and requires confirmation.  That said, the weekly indicators are actually more oversold than overbought.  I like this chart more than the daily.

Dow monthly

But on yet another hand, the monthly chart (on the right) looks fairly discouraging. Note how we've now (finally) fallen out of the rising regression trend channel that goes back to the March 2009 bottom.  That is a bearish setup.  We also remain firmly entrenched in the descending monthly RTC of May of this year.

The only positive here is the stochastic (second from the bottom) which as you can see is nearing oversold.  But since this is a monthly chart, it could be another month or two before this signals a bottom.  While the monthly RSI has entered oversold territory already, it also did that in March 2008 and remained there for a whole year before we saw a bottom.  And the Dow now has no support all the way down to 10,440.

So all things considered, I'm giving this one to the bears.

The VIX: After some indecision last Thursday, the VIX made a decisive 11% gap up on Friday.  Now at 42.96, it is right back up to its 2011 resistance in the 43-45 area.  With an upper Bollinger band of 43.6,  and a stochastic that has actually executed a very unusual bullish crossover at a high level, the VIX could still go higher tomorrow, although its upside seems limited from here.  So that's +1 bears.

VIX futures: The daily futures gapped up on Friday to their upper Bollinger band too.  However, they're now well past their last resistance level and Friday's green candle gives no indication of a turnaround on Monday, so +1 bears.

Market index futures: ES, NQ, and YM are all down at 12:35 AM.  ES is down 0.58%.  That puts it right at its support level around 1107-1122, a level it has successfully tested four times already since the VIX went crazy in August.  However, its indicators are now looking weaker (meaning less oversold) than at any of those previous four times.  This bodes poorly for a fifth success, so +1 bears.

ES daily pivot: Now 1135.75 and ES is trading considerably under that, at 1119.00.  This puts the pivot out of play.  Being below the pivot like this is bearish in and of itself, so +1 bears

USD, weekly

Dollar index: After a truly amazing monthly run-up in September, the dollar put in the mother of all weekly hammers last week.  Its indicators are all oversold on this chart and the stochastic is about to execute a bearish crossover.  I'd be highly surprised if the dollar didn't move lower from here, so that's +1 bulls.

Oil: Daily chart executed a giant bearish engulfing pattern Friday, but one that took it right to support.  Weekly chart remains in a stairstep decline mode with a big weekly dump followed by about five weeks of gradual partial retracement.  If this pattern holds, then this coming week should see oil prices increase, but only slightly.  With oil still in sync with the market, that would be good for stocks, so +1 bulls.

Morningstar Market Fair Value Index: Morningstar reports the index has dropped to 0.79, so that's bearish for stock.  +1 bears.

History: According to The Stock Traders Alamanc,October is a tricky month.  For a long time it had the reputation as being the worst month of the year, but now September seems to have taken over tha dubious honor.  And in the five years from 1999 to 2003, when September was down big, October was up big.  We're just coming off a positively disastrous September.  Then you've got the first day of the month, which is traditionally good, but the Dow has been down four of the last five years on this day.  So on that basis, for tomorrow at least, it's another +1 bears.

Sentiment: After a rough August, J-Trader's market model (see sidebar) did quite well in September, down less than a percent.  He's calling for a buy on Monday, so I'll give +1 bulls for that.

     And the winner is...

The bears with a bull-bear ratio of 3:7.  That said, we are close enough to enough support levels that it will take some really bad news to go significantly lower on Monday.  And if we do go lower, I become more optimistic for Tuesday.    But once again, with the VIX stubbornly remaining up in outer space somewhere, anything's possible.  New rumblings from Greece and now China in the overnight wires though only add to my pessimism for Monday.  Still, not to go against J-Trader, but this Sunday night the Night Owl hoots for a lower Monday.  We'll see.

ES Fantasy Trader

Tonight, the ESFT goes short at  1118.75.